Debt Free Financial Help
Being in debt is costly, and the bad news is that the longer you take to pay it off the more expensive it is. To begin digging yourself out of debt, take an honest look at your spending habits to formulate a plan of action to get rid of your debt.
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Warning
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One way to move toward freedom from debt faster is by lowering the interest rates on your debts, and improving your credit score is vital to getting approved for lower interest. You can review your credit report and correct any potentially damaging errors at no cost, but be careful of falling prey to "free credit report" companies. The Federal Government's Fair Credit Reporting Act (FCRA) stipulates that every person must be allowed free access to their credit report once per year. You can do this by visiting the Annual Credit Report website (see resources). Each of the credit reporting bureaus -- Experian, Equifax and TransUnion -- also grants consumers one free credit report each year. The FTC warns against ordering credit reports from any other "free credit report" companies, as they are not part of the FCRA program.
Prevention
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Once you know where you stand financially, you can prevent yourself from getting further into debt by paying off your credit cards. If you keep a balance on your credit cards, you are keeping yourself in financial gridlock. Financial expert Suze Orman explains, "If you owe a credit card company $5,000 at 18 percent interest and all you do is pay the minimum each month, it will take you over 30 years to pay it off." Some financial experts recommend paying off the card with the highest interest rate first; however, others recommend paying off the card with the smallest balance first to motivate you to continue working on paying down debt. Choose a tactic and stick with it -- and remind yourself how good it will feel to be free of those credit card payments each month.
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The Facts
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Although you may eventually outgrow a budget you create now, it is a first step toward debt-free living and what MSN Money calls "an invaluable personal finance tool." To create a plan of action for your finances, you must first understand how you're spending your money. For one week, write down everything you spend money on, down to the penny. At the end of the week, divide your spending into broad categories, such as food, entertainment, bills and transportation. Doing this will give you a rough estimate of how much you're spending each month. Figure out where you can cut back in order to put more money toward your credit cards and loans, or into savings. CNN Money recommends using a budgeting software program to create and manage your budget.
Considerations
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If you find that you need more money to handle your expenses and still pay more than the minimum on your credit cards each month, you need to find a way to make more money. You may consider getting a part-time job that is in line with your interests. For example, consider working at a clothing store if you like shopping or at the golf course if you love the sport. There are other flexible money making options too, such as selling things you already own or things you make online or taking on freelance work. A few hours of extra work each week can add up to a large credit card payment, which will get you out of debt faster.
Potential
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As you're getting yourself out of debt, it's important to build up a savings account to keep yourself out of debt in the future. Financial expert Dave Ramsey says, "The secret to saving money is to make it a priority, and that is done only when you get some healthy anger or fear and then focus that emotion on your personal decisions." Think about how awful it feels to be knee-deep in debt, and then how good it feels to dig yourself out of it. By saving money, you'll be keeping yourself from ever being in the sticky debt situation again. Ramsey challenges his readers to start by creating a $1,000 emergency fund and building from there.
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References
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