Improve your credit
and reduce your debts... Do you find yourself
receiving persistent phone calls from debt collectors? Are you having a hard time
paying off your minimum monthly payments? You're in debt - and deep! Regardless
of the reason (loss of a job, illness, overspending or just plain carelessness),
with a little planning, persistence and patience, you can dig your way out of
this financial hole. STEP 1: Assess
your Debt To solve any financial crisis,
first you need to evaluate the situation and determine the extent of the problem.
How much debt is too much? It varies from person to person, but in general, if
more than 20% of your take-home pay goes to finance nonhousing debt or if your
rent or mortgage payments exceed 30% of your monthly take-home pay, you may be
overextended. It's also a bad sign if you
can only afford the minimum monthly payments on your credit cards, or if you're
borrowing money to payoff existing debt. STEP
2: Set-Up and Follow a Budget Now
that you've determined how bad your situation is, create a budget to help reduce
your spending and eliminate expenses. The most important factor is to be proactive
and stay dedicated to a plan. This process may require team work; especially if
you have a family. Begin by preparing three lists: - Monthly
Income: Add up all the sources of income that are coming into your household.
- Essential Expenses: Calculate your
fixed expenses (mortgage, car loan, insurance, etc.) and other necessities like
food, clothing and utilities.
- Nonessential
Expenses: Assess your spending that fluctuates and isn't necessary (eating
out, entertainment, recreation, etc.). This will probably be the most difficult
list to complete.
Track your expenses
for one month by writing down everything that you spend. This will help you get
a complete and accurate list. The more details included in your expense lists
the easier it will be to spot areas to make improvements. STEP
3: Cut Your Expenses Obviously, fixed
expenses such as your mortgage and auto loan will be harder to cut. Start with
the nonessential items to see where your spending can be reduced. Perhaps you
can cut food expenses by bringing lunch to work instead of eating out each day.
You might be able to reduce transportation costs by taking public transit or carpooling.
Even utility costs can be reduced by turning off lights, making fewer long-distance
calls, or turning down the thermostat a few degrees in the winter. STEP
4: Reduce Your Existing Debts Once
a balanced budget is established and you've started cutting some expenses, its
time to answer those collection calls or contact your credit card company directly
to speak with an agent. They'll be more than happy to work with you to establish
a repayment plan to pay down your debt. They want to eliminate your past due obligations
just as much as you do! To help, they may be willing to reduce monthly payments
and possibly eliminate late fees, overdraft and finance charges. Once
you've agreed to new terms of repayment, it's important that you keep on track
by always paying at least the minimum each month. Make sure you always pay on
time to help repair and improve your credit score. Here's some other helpful tips:
Pay off high-rate debt first: The higher your
APR, the more interest you end up paying. Begin with your highest-rate cards or
loans and eliminate the balance ASAP. Transfer
high-rate debt to low-rate cards: Consolidating your debt to a single, low-rate
credit card is a smart move (as long as you don't create more debt!). Most credit
cards offer a 0% intro APR on balance transfers-- which can save you more. *
0% Balance Transfer? See our 0% Interest Credit Cards
>>> If you can't seem to set-up
a budget or figure out where to cut expenses, it may be time to call in a professional
debt counselor. They're trained to look for ways to reduce your debt and cut expenses
in ways you may have never thought of before. Low cost services are available
in many communities. Start by contacting your local chamber of commerce, credit
union or bank.
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