How to Get Out of Debt

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By cwengre
User-Submitted Article

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Get out of Debt

Unfortunately getting out of debt isn't as easy as getting into debt. Facing debt head on and having a plan of attack will help with the stress of dealing with debt.

Difficulty: Moderately Easy

Instructions

Step 1

When tackling debt, you need to know the truth. How much debt do you owe? Compile a list of debt that you currently have. Make a notebook or some form a record keeping that you will be able to track your progress. For each creditor determine how much you owe, what your monthly payment currently is and the interest rate you currently pay to that creditor. It's also helpful to determine how long it will take to pay off each debt following your regular monthly payment plan.
Step 2

Next you will want to evaluate which debt you can get interest rates lowered. Mortgage interest maybe lowered by refinancing or asking for a loan modification from your current lender. It's also possible to have an auto loan refinance to a lower rate. Check with all your credit card companies to see if they will lower your interest rate. All of these options could save you interest and lower your monthly payments to help pay down other debt.
Step 3

Organize your debt. Which debt is costing you the most. Some debt like medical and dental do not charge any interest. This debt technically then isn't costing you anything so you may want to prioritize this second to last. Debt like a mortgage or a new car maybe realistically hard to pay off anytime soon if the loan is very new. This then may want to be more towards the end. Debt that is costing you the most due to high interest rate or debt that is obtainingly easier to pay off may want to be prioritized first.
Step 4

Next determine how well you are handling your payments. If your making your payments on time and still have money left over then just prioritizing your debt, lowering your interest rates, and adding more money to your monthly payment is the biggest solution. If this is not the case and you are struggling with your payments then its time to contact your creditors. Tell them that you are having trouble meeting your payment obligation. Ask the creditor to work with you to come up with a new plan of repayment. This is also a good time to ask for a lower interest rate to help you gain control of your debt. Many companies will be glad to work with you. They may offer a lower monthly payment for a time period or a deferment for a month or two. Some credit card companies will settle for an amount a lot less then what you owe with the condition that you close your account. Make sure to ask how that will be reported to the credit bureaus before you decide. If you don't get someone within the company to help then ask to talk to someone else. Quite often the first person you speak with is not authorized to make changes to your account. Avoiding your creditors will only put you further in debt with late charges and raising interest rates.
Step 5

Be weary of debt consolidation. Debt consolidation puts all your debt together in one payment and one interest rate. A debt that may only take you five years to pay off may now take you 20 years to pay off. Even if you pay a higher interest rate now, your adding 15 years of interest to that debt with a consolidated loan.
Step 6

Lastly if your goal is to get out of debt then quit spending. Apply the money to your debt.