Worried About My Debt

Before you get any more worried about your debt, step back and understand that you have many tools and programs to help get you back to financial freedom. The important thing is to stop contributing to your debt now, then create a plan of action to dig yourself out of the hole. Follow through on your plan, and you'll see that there's a light at the end of the tunnel.

Budgeting

The first thing you need to do to gain control of your finances is figure where your money is going. To stop the momentum of falling deeper into debt, begin contributing more money to your monthly payments and stop spending so much. For one week, write down everything you spend money on, then multiply the total by 4.3 to get an estimate of what your out-of-pocket expenditures are for a month. Add your monthly recurring bills to that total. The outcome should tell you how close you are to your monthly income. Take a look at areas where you may be overspending and brainstorm ways to cut back. For example, you may be surprised at how much you're spending on coffee. Bring coffee from home to work a few days a week, and contribute the savings to your debt. If you're spending $4 on coffee seven days a week, cut back to three days and you'll save at least $52 per month. Eating out, buying books and DVDs, and paying for gasoline are other areas where people typically overspend and where they can make small changes to save money.

Credit Counseling

When you are worried about your debt, it's helpful to get advice from a professional. A reputable nonprofit credit counselor will assist in setting up a reasonable budget and give you options for paying off your debt. Such options may include debt settlement, debt negotiation or a debt management plan. However, credit counselors generally only recommend these types of services if you are already behind on payments. Otherwise, they will help you create a plan to attack your debt strategically. To find a trustworthy credit counselor, use the National Foundation for Credit Counseling (see Resources 1).

Paying Off Debt

To pay off your debt yourself, you need a plan so that you know how long it's going to take and what you need to contribute each month. You may choose either to pay off the debt with the highest interest rate or the lowest balance first. Finance experts who recommend paying off the highest-interest-rate debt first point out that you're just paying extra money for your debt to sit and accumulate more interest, so you'll save money by clearing out that debt first. However, other experts recommend the "snowball plan" of paying off the debt with the lowest balance first because of the kick it will give you to continue paying down your debt. By seeing your balance paid down faster, you may gain momentum in paying down the rest of your debt. Whichever method you choose will help you get your credit score up.

Considerations

If you have cut back as much as possible but you're still having a difficult time making ends meet, get a part-time job or take on freelance work. Doing so will help you pay down debt more quickly and may help you to gain job experience.