What to Do When You Are in Debt

Debt hangs over your head, leading to many sleepless nights and worry-filled days. Debt has a tendency to grow and seem insurmountable, but it is possible to get out of debt and stay that way. Taking control of your finances and understanding the basics of becoming debt-free are skills that are simple to learn and can be implemented with discipline.

Organization

Organization is key to getting out of debt. It is impossible to make any headway without first knowing exactly what is owed and to whom. It is also imperative to know about all available income.

Verifying all debt amounts and creditors is most easily done by collecting bill stubs and requesting a credit report from AnnualCreditReport.com. The two most common ways to list debts is from lowest to highest amount owed or from highest interest rate to lowest interest rate.

The benefits of listing from lowest to highest amount is that smaller amounts are easier to pay off, therefor freeing up more cash for higher debts later on. The benefits of listing by interest rate is that less money is spent on interest and more is spent on principal as debts are paid off.

Spending

Credit cards need to be put away unless it is the direst of emergencies. One way to avoid emergency spending on credit is to set aside $1,000 as an emergency fund in a savings account that is easy to access. Bills, restaurant meals and other expenditures should only be made by cash, check or debit.

Dropping all bill payments to the minimum amount due except for the one debt currently being repaid will free up some money, but fat will need to be trimmed in every budget category. Dinners out, new clothing purchases and other expenses need to be trimmed completely from the budget or curtailed extensively.

Making a Payment Schedule

Calling creditors may be a necessity if the minimum payments are too high, and income is too low to meet them. New minimum payments can be negotiated, but everything should be in writing and copies of all correspondence kept.

The basic tenet of getting and staying out of debt is to either spend less or make more. Spending less is often the easier choice, but both methods work best when implemented together. Spending less on groceries will free up a little money, and taking a part-time job delivering newspapers will earn a little. The saved and earned money will add up, making debt repayment that much easier.

Professional Help

Debt consolidation companies will consolidate consumer debt payments into one, easy-to-manage sum. The benefits are that the consolidator ensures that payments are made and creditors will stop calling home and work. The negative is that using a consolidator will have a negative effect on a credit score, but this can be corrected by staying out of debt in the future.

Consolidation companies should be thoroughly researched, as some scam companies do exist. The Better Business Bureau lists reputable consolidation companies. Banks and other financial institutions also will often refer their customers to reputable consolidators that they have worked with in the past.