How to Escape Debt

The road to being debt-free begins with an honest assessment of your financial situation. Once you determine where you stand, take steps to turn the tide. Follow these guidelines and you may find ways to accelerate the process of moving from the red to the black.

Instructions

Difficulty: Moderate

1. Control your spending. This is the first step toward fixing money problems. Most people who spend too much are enthralled with the act of buying, not the value of the goods. Question every purchase--what will happen if you don't buy? You might be surprised how little real value most stuff has and how easily you can do without it. See 15 Live With Less.
2. Pay your bills on time. Besides imposing hefty late fees, creditors bump up interest rates for late payments. Pay parking tickets and car registration swiftly to avoid late penalties.
3. Destroy all of your credit cards except one, with the lowest possible long-term interest rate. Leave this card at home and use it only for emergencies. Transfer the debt on your other cards to this remaining card. Carry cash for daily expenses.
4. Get a copy of your credit report from one of the three major credit bureaus: Equifax.com, Experian.com and TransUnion.com. Review your report carefully for accounts or addresses that don't belong to you, creditors who have made mistakes, and companies who have looked at your report without your permission. Report any mistakes to the credit bureau. That means requesting and reviewing a report from the other two bureaus to make sure the mistakes are corrected.
5. Refinance your mortgage at a lower rate. If your credit is already bad, this may not be possible. But if you can get a lower rate, you can apply your savings directly to pay down your debt, or pull extra cash out to take care of it all at once.
6. Sell valuables and use the money to pay off your debt. RVs, cars, boats and other expensive toys should be eliminated. They won't be fun if they're dragging you into financial ruin.
7. Negotiate a reduction in your annual fee. Finance charges are not the only cost of a credit card--the annual fee can add up to much more than your monthly finance charges. Call your creditcard company and negotiate hard to reduce or even eliminate this fee. Again, threatening to close your account usually gets their attention. Don't bother trying this with cards that are cobranded with airlines or hotels to offer rewards--they will never drop their fee.
8. Call the credit company if, after following all the above measures, you still can't pay your bills. Ask for a lower payoff amount. Credit companies will often work with you in severe cases in order to recoup some of their money. See 240 Survive Bankruptcy.

Tips & Warnings

• Avoid maxing out all your credit limits. If you use 80 percent or more of the credit you have available, lenders will think you are living beyond your means--and you probably are.
• Cancel any accounts you don't use. Credit cards you acquired but never use are still considered active.
• Apply occasional windfalls and raises to eliminate outstanding debt.
• Never use a debt consolidator that advertises aggressively or promises you a quick fix. Often this will plunge you deeper into debt, and it may even damage your credit record more than you already have.
• When you're paying off any debt, it's a great idea to know where you stand financially. Specifically, it's smart to recognize any warning signs that might foretell a personal economic plunge. For example, if you have a student loan, three unpaid invoices from your lender is a big red flag that you're not keeping up with your loan payments. Another red flag: Your bank account is consistently overdrawn.