If you feel like it's getting more and more difficult to
pay off your bills every month, it may be time to reevaluate
your finances. Your credit rating can affect everything from
job prospects to your ability to buy a home, so it's never
too soon to take control of your debt.
To better manage your debt, consider these five steps:
1. Track your spending. Record every penny
you spend in a daily journal for a month or two. We admit
that's not the most exciting activity, but trust us, you will
be amazed at the results. Jot down coffee and sodas on the
run, daily breakfast, lunch and snacks, grocery store runs,
and other places you spend but don't ordinarily keep track
of or budget for. Most households can typically find at least
15% that can be cut from their spending without pain.
TIP: Use a small notebook or a piece of paper in your wallet
and log ALL daily expenditures everyday.
2. Develop a Debt Plan. Sometimes debt can
be overwhelming and instead of tackling it head on, we try
to avoid it. This generally makes matters worse. In reality,
having a clear plan is one of the first steps to controlling
debt. Start by writing down all your debts. Rank them by interest
rate, with the higher ones on top. Make the minimum monthly
payments on all your debts except the one at the top of your
list -- give it priority. Use all extra cash to pay down the
debt with the highest interest rate, first. Review your spending
plan: How much flexible spending money do you have? What can
be allotted to your debt pay-off strategy? Use any raises,
bonuses or moonlighting income to further reduce the top debt.
TIP: Set goals for paying down debts. The more specific your
goals are, the more likely you'll reach them.
3. Consider consolidating debt through a home equity loan.
Interest rates are typically quite reasonable, and the interest
on the loans is tax-deductible, up to certain limits. Be careful:
you are using your home as collateral, so make sure you borrow
wisely. You certainly don't want to put your home at risk
by falling behind in payments.
4. Roll your debt into a lower rate credit card.
Interest rates can greatly affect your monthly payments and
the overall cost of your credit. By keeping your debt consolidated
on one or two cards with low interest rates, you can save
as you work to reduce your debt. Check out top credit card
5. Set up a budget. Ideally, that 15% you "find"
can help you begin to pay down your debt. If you still need
to find some more fat to trim , it's time to put yourself
on a spending diet, otherwise known as a budget. Budgeting
isn't the most exciting thing to do, but tracking your expenses
is the key to learning where you can trim.
If it's already too late for any of the aforementioned steps
and you are drowning in debt, there's still plenty to do.
Contact creditors. Don't stick you head in the ground
if you fall behind on payments. That's not going to solve
anything. It is far better to take action: call credit card
companies and other lenders before they call out the collection
agency. Many of your lenders will appreciate your taking responsibility
for your situation, and will work with you to devise a payment
plan that you can handle.
Get credit counseling. If you are having trouble tackling
your debt problems alone, there's low-cost, and often free
help available from the non-profit Consumer Credit Counseling
Service. Counselors will help you negotiate with creditors
and devise a payment plan.
Get a FREE car insurance quote at GEICO.com.
File for bankruptcy. Use this only in dire last-resort
situations. Though bankruptcy may seem like a fresh start,
it's important to remember that your credit rating will remain
tarnished for seven to ten years. And that is going to affect
your ability to obtain a credit card, buy a house, lease a
car. In some instances, it might even affect your ability
to get a job.