Follow Our Simple Guide to Get Out of Debt
Getting out of debt isn’t always easy, but it is worth it. It’s simpler than it sounds, especially when you begin to understand the numbers and factors that come into play. Following these steps can help you gain control of your debt and put a plan into action that can help you emerge from the debt cycle.
1. Gather Information
Before you prepare a debt reduction plan, it’s important to ensure you gather all of the necessary information.
Begin by collecting all recent loan (student and otherwise) and credit card statements.
Obtain your annual credit report and your credit score for free at Credit.com. When you get your report, ensure that all debt listed is valid.
Gather any student loan information you may have when considering how to get out of debt. You can do this easily and for free online as well, using the Federal Student Aid website. Again, verify that all student loan information is accurate.
2. Survey the Scope of Debt
Understanding all factors of your debt can help you gain a clearer picture and, in turn, discover the best ways you can get out of debt.
Start by making a list of all of your accounts, including the creditors’ names, each interest rate, your current balances and your minimum monthly payments.
Also, include the three-year payment for each debt, which can be found listed on most credit card statements.
Don’t forget to include all loans, even if they’re not listed on your credit report. This may include personal or family loans, medical bills, etc. – you want to ensure you have a complete picture of all your debt in order to effectively find ways to get out of debt as quickly as possible.
3. Examine Current Rates
Now is the time to figure out whether you qualify for lower interest rates or balance transfers. You can do this on Credit.com, after signing up for a free account.
It’s also recommended that you contact each individual credit card provider to ask for lower rates on your existing balances. If you have auto loans, call to find out if you’re eligible to refinance.
Next, visit StudentLoans.gov to view your student loan consolidation and income-based repayment options.
Now is the time to consider obtaining a consolidation loan or a balance transfer on your current accounts in order to take advantage of lower rates. These actions can knock out high interest rates, which really add up over time.
4. Get Your Total
By calculating your total payoff number, it will become much easier to make concrete goals you can work towards in terms of getting out of debt.
First, add up the three-year payoff numbers you gathered from your credit card statements.
Next, add up all monthly payments for all other existing debts.
The sum of the two numbers is your total monthly payment or total payoff number.
5. Strategize: How to Get Out of Debt
Once you’ve determined your total payoff number, it’s time to strategize. Consider the number you came up with. Ask yourself: Can I realistically afford to pay the total monthly payment until all debt is paid?
If you cannot realistically afford the amount, consider contacting a credit counseling agency or bankruptcy attorney. These experts work with creditors to lower rates and advocate on your behalf. While it may seem like an extreme step, it may be your best option to tackle the issues head on with an expert on your side.
If you’ve determine that you’re able to pay the amount, you’ll need to decide which type of debt you’d like to conquer first.
Some experts believe it’s best to pay off debt with the highest interest rates first, since interest adds up and you end up paying more than you’ve actually borrowed in the long run.
Others recommend you pay off the lowest account balances first because it allows you to focus on one debt account at a time. These experts believe that paying off lower debt balances can jump-start your debt reduction plan with faster results. How should you get out of debt? This will depend on your personal objectives and goals.
Once you decide which type of debt you’d like to target, it’s vital that you set up auto payment options on your other existing accounts to ensure that all bills are paid on time while you target specific debt accounts.
Pay as much as you are able on your target debt and continue to do so until it’s paid off completely. Once you’ve paid off your first target debt fully, move on to another until all debts are paid.
6. Adjust Your Plan
There’s no one-size-fits-all debt reduction plan and, even if you’ve created a personalized plan to how to get debt free, you may need to readjust it to suit your goals. Ensure you’re actually making progress toward getting out of debt for good by tracking your credit score monthly for improvements.
7. Continually Check for New Options
Your credit score should begin to improve over time, but if you don’t see progress after several months, you will likely want to readjust your plan accordingly.
As your credit score improves, you may become eligible for more options that you may not have had in the beginning, like consolidation loans or balance transfers. Whenever your credit score improves, revisit these options to see if you’re eligible for new choices.
8. How to Get Out of Debt? Follow Through
While it won’t occur overnight, stick with it until your debt no longer exists – your hard work and determination will eventually pay off, quite literally.
If you need help walking through these eight steps, and would like to speak with a trained debt consultant on other ways how you can get out of debt, please contact Brownstone Law Group today for a FREE phone consultation. You can visit our Orange County or San Diego Offices, or call us at 888-853-8871 today.
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This article has been reviewed and approved by Thomas A. Moore, managing attorney Brownstone Law Group, PC. California Bar # 148698. This article is for informational purposes only, does not provide legal or tax advice of any kind or form any type of attorney/client relationship. This article was published on March 11, 2016.