How to Successfully Get Out of Debt on your Own

For many people, it can be difficult to learn how to get out of credit card debt on your own without any outside help. However, it can be done. And many others before you have done it.

The first thing to do is to stop adding on to the debt. This means it is time to stop using those credit cards. Either put those credit cards in a place that is hard to reach such as a safe deposit box at the bank. You can also cut the credit cards up. However, don’t cut up all of the credit cards.

You will want to keep one credit card for emergencies and other items you must buy. Also, don’t cancel the credit cards since it could lower your credit score.

The next thing to do is to work on the spending. First of all, it’s impossible to cut spending without knowing what is being spent. So the first step is to record every penny of spending that goes on during an entire month. Record everything no matter how big or small. The result can be quite shocking. For most people, the debt comes from spending a little here and there over time.

After figuring out what is being spent, it is time to figure out what to cut out of the monthly budget. There are essential expenses that must be paid such as minimum payments on debt, power bill, rent, mortgage, food, and medicine. These are expenses that will result in a lot of harm if skipped. Then there are expenses where it’s possible to skip for a little while such as newspaper subscriptions, cable TV, coffee at the local cafe, gym membership, work clothing, and things like that.

It’s not necessary to cut all non-essential items. However, the goal in the future is going to be to pay off the debt. That means the money for the debt repayment must come from somewhere. The amount of money that is saved from cutting non-essential expenses is going to be the amount that is paid down towards debt every month beyond the minimum payment.

Once you know how much extra will be going towards debt, the next thing to figure out is who to pay off first. In order to do this, the first thing you will need to do is to get a list of all debts you have including the name of the creditor, the balance, the minimum payment, the interest rate, and the number of remaining payments. Put all of this information in a simple spreadsheet.

Now it is time to determine who to pay first. Everyone but one creditor will be getting the minimum payment. The one creditor chosen will be getting the excess debt repayment. The goal is to pay off that credit first as quickly as possible. There are two popular approaches to choosing who to pay off first.

Most people would suggest paying off the debt with the highest interest rate. The reason for doing that is because it will result in the least amount of interest paid in the long run. On the other hand, a big balance with a high interest rate could take many years to pay off, which can be psychologically devastating.

Others feel that the payment should go to the loan that has the smallest balance regardless of the interest rate. Paying the smallest balance is good for those who need a psychological boost from paying a loan off. If you are lucky enough to have a small balance with a big monthly payment such as an installment loan or car loan, retiring that debt will greatly improve your cash flow due to the large minimum payment disappearing.

When you pay off one creditor, the payment that was used to pay the first creditor off should be paid to the next debt in line. This will make the second loan get paid off faster. After the second loan has been paid off, do the same thing again on the third loan. It’s rise and repeat from there. The monthly amount that is being devoted to one debt will grow like a snowball rolling down the hill that is getting bigger.

Finally, you should call all of your credit card companies and ask them to lower the interest rate. It costs nothing to ask. Some banks will refuse to lower the rate. Others will want to help by lowering the rate in order to reduce the chances of default. Each debt where you succeed in getting the interest rate lowered makes its minimum payment lower. This means even more money for the debt being paid down first.

Monique Rowe is a guest writer who writes for Paying Paul.

Tagged credit card, debt, featured