Debt Woes

You know you are in trouble when your income is completely eaten up with debt payment and necessary living expenses. Your trouble is worse if you income will not stretch even that far. It is time to explore options for debt elimination, and the right one for you will be among the following strategies. The process for elimination of debt is simple, if you will analyze your situation and select the correct option.

A Budget

If you do not have a budget, you do not even know how much trouble you may or may not have. This is the first step for everyone. You need to spend one month recording each and every penny you spend, listing amount and type of expense. And yes, that includes something as small as a candy bar. Consolidate your lists into three columns – essentials (rent/mortgage, utilities, food, car, insurance, gas, etc.), non-essentials that are still important (lunch, clothing, cable), and non-essentials which are luxuries (impulse purchases, jewelry, gadgets, etc.). Add up all three columns and subtract the total from you net monthly income. If you are in the hole, you now know how to cut expenses. Eliminate all of column 3. Eliminate as much of column 2 as possible. Get down to the basics, and determine how much surplus there could be if you sacrificed. If there is surplus, you will not commit to using it to eliminate your debt.

Using the Surplus to Eliminate Debt

List each debt you have in order of amount, beginning with the smallest. The battle begins with #1. Take your entire surplus and dump it on that debt each month until it is paid off. Move on to #2, adding the payment from #1 to the minimum for #2 until it is eliminated. Continue in this fashion until you have paid off all of that high-interest debt and have money to play, save, and invest. What a great feeling! To prevent the same situation again, cut up your credit cards, saving only one for emergencies. Close accounts if you feel you will be tempted to use them again. Start a regular savings plan, paying yourself first from each paycheck. Get on track for a secure financial future.

When There is Not Enough to Go Around

If your debt payment exceeds your income, you need another option. This is the time for consolidation of debt into one larger loan with a smaller payment than the total of previous payments. If your credit is good, you can probably secure one by yourself, from a credit union or bank. If you own a home, you might consider an equity loan or a refinance, using the cash to pay off all debt. These loans are typically at lower interest rates than any personal loan would be. If your credit has already suffered because of late or missed payments, you will need to find a professional to assist with the process for elimination of debt. Such a professional will negotiate with your creditors for reduction in interest, payment and total debt amount and will help to secure a debt consolidation loan. There will be fees and the consolidation loan will carry a high rate of interest, however, you will be able to have one lower monthly payment and be able to see the end in sight. Again, cut up all credit cards but one, and vow to charge only emergency expenses for which you do not have cash.

Bankruptcy – the Final Solution

If you are in too deep even for normal consolidation and elimination strategies, contact an attorney to discuss the types of bankruptcy and the means by which you can pursue this option. As drastic as it may be, it can be a simple process, and you will then spend the next few years repairing your credit rating.