Getting out from under crippling debt can help provide you and your family a secure financial future. To begin seeing the proverbial light at the end of the tunnel, take things one step at a time. Focus on getting rid of past debts while living within your means.
Debt Analysis
Gather any documentation relevant to your debt. This includes monthly statements and original loan documents. Make a list of all debt, past and current. List the highest debt first and then go down the line until you arrive at the smallest debt. Also include a notation on the current interest rate and how the creditor applies payments received over and above the minimum required payment.
Action Plan
Make a plan to start paying down debt. Focus on credit card debt first, which typically represents the debt with the highest interest rate. Pay off cards with low balances, less than $1,000 for instance, as soon as possible regardless of the interest rate. While paying off the debt with the highest interest rate is typically the route you want to take, just making headway in eliminating debt can give you motivation to tackle larger debt. Pay double the minimum payment on all credit card debt if you can't pay off a credit card with a lump sum payment.
While paying off your mortgage early may not represent a viable option, make double payments when you can. For automobile loans, take care of your current vehicle payments and resist the urge to buy on credit the next go around. Start saving money now and purchase your next car, be it used or new, with cash.
Eliminating Excess
Debt free living represents a way of living that can take some getting used to. Getting rid of creditors and the stress that comes from overwhelming credit card and consumer debt should provide some much needed incentive to meet your goals. Once you get rid of debt, consider what you will do next. Living within your means represents the overall purpose of debt free living. Save for the items you want and learn to do without extravagant items that you would previously have purchased on credit.
Additional Tips
Request a free copy of your credit report. AnnualCreditReport.com, in conjunction with the three main credit bureaus, provides one free credit report each year for consumers. Review your credit report for accuracy and fix any mistakes by contacting creditors and the credit reporting agency reporting the error. Conduct all communication via certified mail to ensure you have the necessary documentation for future reference. You may want to retain one credit card for true emergencies. To keep your credit history current you may also want to consider using one credit card monthly for small purchases, such as a gasoline fill-up or oil change. Pay off the entire balance each month.
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