Losing weight, sure it’s easy. I will eat less, exercise more, avoid cakes, and … lose weight. Most of us go through the cycle of making resolutions, keeping them, breaking them, and making them again.Shedding debt is similar to shedding weight. It takes perseverance, determination, and lots of hard work. You know that it is possible, because many people have succeeded. You know that it is hard to accomplish, because you have tried it a number of times.
We resolve to get out of debt (one last on-line purchase won’t hurt), make a big payment on our credit card, then find ourselves racking up more debt. Getting out of debt should be easy and for some of you it probably is. You have good income, great savings and even an emergency fund to last you for six months of living expenses. Hey, you have four credit cards with a total line of credit for $30,000 and you don’t even owe a dime. Then you don’t need my advice, because you are a great example of how to stay out of debt.
However, for many of us, we are in debt and don’t know how to get out of debt.
You can get rid of debt by starting a debt diet, and to help you get there, learn about:
1. The debt cycle
2. Ways to get out of debt
The Debt Cycle:
A good friend of mine explained the debt cycle as follows: You either sink or swim.
If you spend too much, then you need to take on debt (growing credit card balances), pay more interest, and end up with even less money to spend.
The key to getting out of debt is jumping off the carousel. It isn’t easy to do, but it can be done. Remember, set your goals, but be realistic.
The Debt Diet: Steps to getting out of Debt
The first question is where to start? There are so many different types of debts and everyone has a unique situation. Credit card debt, personal loans, student loans, auto loans, mortgage loans, just to name a few. Sometimes debt is due to emergency expenses way over our budget, but many times it is because of bad personal habits, spending more than we can afford.
Tip: I recommend that you check out a cool tool: Bills.com Debt Coach. You punch in information about your personal situation and the Coach gives you a personalised debt relief solution.
You’ve already made the first step by reading this blog. You want to get out of debt and learning about the right steps is the first step. To help you get started, follow these steps:
1. organise your bills, you loan papers, and your other financial papers.
2. Create a budget. There are many budget tools available. Choose one that you can easily create, work with, and maintain. A simple tool you can use is better than a sophisticated one that you don’t have the time to deal with.
3. List all of your debts, your monthly payments, your interest rates, and contact details of your creditors.
4. Make your resolutions and goals. Be realistic. Set yourself a first goal of stopping the bad-debt cycle and not spending more than you have.
Once you have “weighed” your debt situation you are ready to get out of debt. I wish that there was an easy recipe, but we all know there is not. Sure, there are many easy solutions and we see them all the time. By all means, use them:
1. Make more money.
2. Spend less money.
3. Cut up your credit card.
I don’t want to pretend that by waving a magic wand you can get rid of your debt. However, there are lots of different solutions and you have to find the one that is right for you. Your next best step is to learn about different debt solutions. Just to give you a taste (after all it is a debt diet,) here are the main debt relief solutions that will help you get out of debt:
1. maximise your payments. Avoid minimum payments on your credit card.
2. Consolidate your debt with a loan. It is hard to find a low interest rate, especially if your credit score is low. Sometimes a 401-k loan can work.
3. Enter a credit consolidation and debt management program. Professional budgeting help and having a professional negotiate lower fees can help shed debt.
4. Sign up for a debt management program. If you are struggling to make payments, your credit is already damaged. A debt management program can save you lots of money. Make sure that you use an AFCC (American Fair Credit Council) accredited company and don’t pay upfront fees.
5. If your situation is desperate, then talk to a bankruptcy lawyer. Bankruptcy can help you get rid of your debt.
A final word of caution: Be patient. Losing weight or getting rid of debt does not happen overnight. Changing habits is hard. However, with hard work, preparation and learning you can look into the mirror and see a slimmer debt profile and a fatter wallet.