Debt Recovery Information

Recovering from debt will take commitment, dedication and determination, but if you stick to a strategy, you can eliminate your debt over time. Once you know how much you have to contribute each month to paying off your debt, you will be able to take a good look at the options you have for getting out of debt as fast as possible, with the method that will have the least impact on your credit. Remember that paying off your debt now will help you have better financial opportunities in the future.

Budgeting

You need to create a plan of action before you can begin recovering actively from your debt, and that's where a budget comes into play. Your goal for creating a budget is to figure out just how much you're spending each month in relationship to how much income you're making. To do this, you need to track your out-of-pocket spending over the course of a week. If you just use your debit card for all your purchases, your online bank statement is a good indicator of your weekly spending total. Add this to whatever monthly recurring bills you may have, such as utilities, mortgage/rent, day care or cell phone bills. Multiply the entire total by 4.3 to get a good idea of your total monthly spending. Where can you cut back so that you have more to contribute to your debt each month? If you find yourself feeling reluctant to cut back, remember that you'll recover more quickly when you pay more to your debt each month -- which will save you money in the long run.

Self-Help

Once you figure out the maximum amount you can contribute to your debt each month, you need to decide on a payment plan that you'll stick with until your debt is paid off. Those who need to see their payments impacting their debt utilization ratio quickly may benefit from using the debt snowball plan, in which they pay off the smallest debt first. A $100 payment makes a much larger impact on a $500 balance than a $10,000 balance, and seeing their payments bring down big chunks of the balance may be motivational. Others may be motivated by saving money, in which case paying off the debt with the highest interest rate first may be the best option. This route ensures that you are paying as little on interest as possible over the course of your debt recovery.

Credit Counseling

For those feeling overwhelmed by the amount of debt they need to pay off before they have fully reached financial freedom, credit counseling may be helpful. You may find a reputable credit counseling organization by using the search function on the National Foundation for Credit Counseling website. By reviewing your specific financial situation, your credit counselor will be able to help you formulate a workable budget and make recommendations that are best suited to your life. Your credit counselor may propose solutions such as assistance in formulating a strategy for self-help, debt consolidation, a debt management plan or bankruptcy.

Considerations

Identify the root of the reason you got into debt to begin with so that you know how to avoid that behavior when choosing a debt recovery plan. For example, if your problem is overspending, debt consolidation may actually present you with more problems than solutions, since a consolidation loan frees up your credit, and without restraint you could potentially end up with even more debt. When working with a credit counselor, you will have the ability to ask for the benefits and drawbacks of each option to avoid harming your credit.