To begin getting out of debt, it is a good idea to list out all your debts. Make sure to include student loans, car loans, mortgage (if you have one), any other loans, accounts that are in collections, and outstanding credit card debt. If you are unsure about what debts you have, check out your free credit report to show your most up to date information on your accounts.
After your debts have been listed, list out your monthly expenses such as your phone bill, your grocery bill, utility bill, internet/cable bill, rent, and whatever other expenses that you pay for on a monthly basis. Subtract your monthly expenses from your monthly take-home income. If you have money left over at the end of the month, this needs to be put towards your debt.
You may look for other ways to improve your financial standing:
- Find ways to cut down on your monthly expenses. This may be finding a less expensive cable or internet provider, eating out less, or riding your bike to work.
- Increase your monthly income. If you are able, find a second job, sell items you don’t need or no longer use, or find a job that pays more. This increase in income can be put towards paying down your debts.
- Contact your debtors. Ask for a lower interest rate if you have a record of making on-time payments. Other groups may be able to put you on a payment plan. Student loans may have the option to put you on an income-driven payment plan which could lower your monthly payment. Work to bring your accounts that are in collections to being current, as collections can negatively impact your credit.
As you begin moving forward in paying off your debts, decide if you want to pay off the debt with the highest interest rate or to pay off the smallest balance. Paying off the account with the highest interest rate can help decrease the overall amount of interest you end up paying but paying off debts with the smallest balance can help you reduce the number of debts you have. Whenever you pay off one debt, put the amount you were paying toward the next debt.
There are also credit counseling groups and debt management plans to help those deep in debt.