How to Dig Yourself Out of Debt

Getting yourself into debt was probably easy. Getting yourself out can be hard. This article offers some tips on how to make the process easier.

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• Willpower and Self-Discipline

1. If you've run up a lot of credit card debt, start paying off the one with the highest interest rate first. Mathematically, this will save you the most interest. However, if you have several smaller credit card balances, then you may feel like you're making more progress by paying them off one by one first.

2. Start keeping VERY close track of your spending. A number of small amenities in your budget may have to be eliminated in order to make ends meet. Restaurants, movie theaters and other expensive entertainment can be substituted with libraries, art galleries and outdoor exercise. Newspapers, magazine subscriptions and cable TV are also good candidates for budget cuts. One expenditure that may be worthwhile, however, is a personal finance program that tracks your debts, assets and cash flow on a daily basis, so that you know exactly where you stand at all times.

3. Whatever you do, DON'T miss a payment. Late payments can really hurt your credit score, and thus make it even harder for you to secure more favorable financing. This can affect your insurance rates as well. Making the minimum payment by the deadline on your credit card is much smarter than making a larger payment a few days late.

4. As always, a second source of income can make a big difference to debtors. If you can earn just $500 a month extra, that's $6,000 a year that you can apply toward debt reduction. Another idea is reducing the amount of tax you have withheld from your paycheck. Having no tax withheld could be advantageous in some cases. Of course, you'll have to pay the tax with interest and penalty at the end of the year, but these rates are generally much lower than standard credit card rates.

5. Don't hesitate to get help if you need it. Negotiate with creditors and see if you can work out an acceptable settlement. Credit and financial counseling services can be invaluable resources and may be able to point you to options or ideas that you would never find out about otherwise. They can also start you on a debt management or consolidation program to help lower your rates (see Resources below for links to credit counseling assistance).

6. Finally, if all else fails, see if you can get a debt consolidation loan from a family member. You can offer to pay them a rate that's much lower than your credit card interest, but much higher than what they would get in a checking or savings account.

Resources

• National Foundation for Credit Counseling
• Association of Independent Consumer Credit Counseling Agencies