get out of debtget out of debt

Get Out of Debt.Finding yourself deep in debt can be overwhelming. The good news is, getting out of debt is possible—it just takes a little time.

While some debt can be unavoidable—such as a mortgage or car loan—you can and should deal with other unnecessary debt that’s causing stress. Once you formulate a plan and stick to it, you could find yourself debt-free and armed with the knowledge to stay that way.

Follow these steps to help you get out of debt, remain debt-free in the future and build good credit for the long haul.

1. List Everything You Owe

To pay off your debt, you need to know exactly how much you owe:

  • Make a list of all your debts. Include your mortgage, vehicle loans, student loans, other types of loans, accounts in collection and credit cards.
  • For loans, note your interest rate and monthly payment.
  • For credit cards, note your interest rate and the minimum monthly payment.

Add your monthly loan payments and minimum credit card payments to determine the minimum amount you owe each month.

If you’re unsure of all the accounts you have open, especially those that might be in collections, you can check your free credit report. It will show what creditors are currently reporting to the credit bureaus, including your most recently reported balances and contact information for the accounts. (Your banks and credit card issuers will have the most up-to-date information.)

The total you come up with is the minimum amount you need to pay every month simply to stay current on your debt. However, if that’s all you pay toward your  on a monthly basis, it will be nearly impossible to pay it all off.

2. Decide How Much You Can Pay Each Month!Get Out of Debt

Once you’ve listed out your current , make another list that includes all your non-debt monthly expenses, such as groceries, cell phone bill, utilities, gas for your car, rent, entertainment, clothing and so on.

Some of these amounts can vary from month to month, so it’s a good idea to take the average of several months.

For example, to find out your average monthly electricity payment, add up the total from six months’ worth of bills

and then divide the sum by six. That’s your average monthly electricity cost for the past six months.

This list represents basic expenses that you have to pay every month. Now compare this amount with your monthly

income, considering only the money you have left after paying taxes and other salary withholdings—your take-home

pay or monthly net income. Subtract these total expenses from your monthly income.

If the amount you have left over after paying these necessary bills is less than the amount you need to put toward your debt, you’ll need to take action.

If the amount left over after paying basic expenses is more than the minimum amount you need to put toward your

debt, decide how much additional money you would like to set aside to pay down your debt each month. Remember, the more you can pay above the minimum, the faster you’ll be able to pay off your debt.

3. Reduce Your Interest Rates

High-interest rates can cause your debt to grow rapidly, especially if you have a lot of credit card debt. When you’re paying a lot in interest, it can be difficult to pay off the principal.

Here are some common types of higher-interest debt and tips for how to reduce the interest you pay on each:

Student Loans

While certain types of student loans can have fairly low-interest rates, if your student loans are older, your rates may

be higher. Additionally, if you have a high principal, the interest can quickly add up.

Depending on your income and the type of student loan you have, you may be able to apply for an income-driven

repayment plan on that will lower your monthly payment. You must be current on your student loan

debt to qualify, but you could reduce your monthly payment without incurring a penalty or harming your credit score.

You may also be able to obtain a  consolidation loan if you have more than one student loan. Consolidating

multiple student loans, which you can also apply for through, will allow you to have a single

monthly payment at a fixed interest rate that’s based on the average of the interest rates on the loans you’re

consolidating. There’s no cost to consolidate multiple federal education loans into one loan. However, you may lose

certain student loan benefits, such as the ability to defer repayment.

You may also apply for a consolidation loan from a bank or other financial institution that combines your student

loans and other debt. If you go this route, however, you may lose student loan benefits,

such as the ability to defer repayment.

Debt Settlement

If you’re looking for help dealing with high-interest rates and difficult-to-manage debt, you may wonder if

settlement is a good option for you. Some settlement companies advertise that they will negotiate with lenders

on your behalf to get your payments reduced. You go through a third party company to pay

your creditors a lump sum, usually an amount less than the total you owe, to settle the debt. While debt settlement

may make it easier for you to pay off yours, it does have some significant credit consequences.

Whenever you pay less than the full amount you owe—which you agreed to pay when you entered into a credit

agreement with the lender or credit card company—the settlement appears as negative information on your credit report. Negative information can contribute to lower credit scores.

Instead of diving into a settlement, a better option might be to talk to a nonprofit credit counselor. Credit

counseling organizations can help you better understand tactics for managing and reducing yours, such as

creating and following a budget, and they may help you avoid the negative impact of  settlement

Credit counseling organizations also offer debt management plans, which are typically for those deep in debt. A debt

management plan can reduce the number of payments you have to make each month. A credit counselor from

a government-approved list will negotiate with your creditors to see if they’ll accept reduced interest rates or monthly

payments, waive fees, or reduce the amount you owe. Then you pay the credit counseling agency once a month and

the organization distributes the funds to your creditors per their agreement. If you enroll in a debt management plan,

it could appear on your credit report. For more, see “A Debt Management Plan: Is It Right for You?”

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Paying all your bills on time every month is one of the single best things you can do for your credit. Take any steps

necessary to ensure you remember to pay your bills. You can set up automatic payments or payment reminders through your bank to ensure you never miss a payment.

If you find you’re having trouble juggling all your bills and keeping up with payments, a debt consolidation loan or a

debt management plan, mentioned above, could help. But you don’t need professional help to create your own plan

for managing debt. There are multiple ways to pay down, including:

  • Put extra money toward the with the highest interest rate. In the long run, this will reduce the total amount of interest you pay.
  • Put extra money toward the credit card or with the smallest balance. You’ll be able to pay it off quickly,
  • reducing the total number of accounts you have to deal with and giving yourself the mental boost of successfully
  • eliminating part of your debt (though you’ll pay more interest in the long run than if you were to pay off debt with the highest interest rate first).
  • Deal with any debts in collections. Bringing collection accounts current can help reduce their negative impact on.
  • your credit, which is a good reason to put it at the top of your to-do list. Plus, reducing calls from debt collectors can help relieve some of the stress of being.

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As you work to pay down your current, it’s important not to undermine your hard work by taking on any new

debt. Avoid the temptation to use a personal loan or balance transfer card to consolidate credit card debt unless

you’re extremely diligent about not using the card once you’ve paid off the balance, or only charge what you know you can pay off every month.

Each time you successfully pay off put the extra money you freed up toward paying off more of your other

debts. In months where you make more money than anticipated, or your expenses are less than expected, make the

extra money work harder for you by putting it toward additional payments on your debt.

What if You Still Need Help?

Sometimes is just too much and you may fear you’ll never be able to repay everything you owe. You do have

some last resort options, such as getting a  management plan or declaring bankruptcy.

Declaring bankruptcy is one of the most harmful circumstances for your credit, and it should only be a last resort.

Depending on the type of bankruptcy you declare, the negative information will remain on your credit report for

seven to 10 years. You may either have all your debts eliminated or have to agree to a plan to repay at least part of your. If your management plan isn’t working and you’re thinking about declaring bankruptcy, you might first consider

getting a debt consolidation loan to help streamline your payments and lower your interest rates. Check out these

Experian partner loans offer consolidation loans with competitive annual percentage rates (APRs).

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