1. Stop increasing your debt. If you have any credit cards that are maxed out, cut them in half. If you have more than one remaining credit card, cut them up. When you finish, you should have no more than one credit card. Also cut up any "convenience" cards, such as gas cards, department store cards, etc. You will use your one credit card ONLY to buy "must haves" (see below) until you can get your spending fully under control.
2. Record your spending. The idea of writing down what you spend is a concept most people find annoying at best and useless at worst. However, this is actually your key to getting out of debt. You're in debt because you spent money you didn't have. If you're like many people, your debt didn't come from one single huge purchase; it was trickles of spending amassed over time. Avoiding more debt starts with knowing what you are spending your money on. Each day for one month (at least), write down every penny you spend, no matter how small.
3. Categorize your spending. Categorize your monthly expenses into logical groups of "Must have," "Should have," and "Like to have." "Must haves" are things that will cause harm if you don't buy them, such as food, rent, medicine, pet food, etc. "Should haves" are things that you need, but can do without for a little while, e.g., new clothes for work, gym membership, etc. "Like to haves" are things that you don't need, but enhance your life, e.g., magazine subscriptions, newspaper, cable tv, weekly coffee with friends, IM on your phone, etc. By doing this, you'll have a good idea of what you spend your money on, and you'll be able to figure out where you might need to cut back on spending. You don't want to eliminate all of the "should haves" and the "like to haves," but take a look at those first. One of your expenses will be paying off your debt. You will want to always pay more than the minimum required, otherwise it will take a really long time to eliminate your debt. For example, a single credit card with just a $1,000 balance and 19% interest will take about FIVE YEARS to pay off by making only the minimum payment of $26. Paying the minimum, you will spend $1556.40, with the Total Interest Paid: $556.40! Paying only the minimum payment will equate to giving them 55% more than you actually borrowed.
4. Make a budget based on your spending record. Write down the amount you spent in each category of spending last month as you budget for spending for the next month. Don't sweat if you feel like the amount is too much. For now, just write it down. If you spent $250 on clothes last month, write it down. If you spent $200 on gas for your car last month, write it down.
5. Figure out your debt paydown fund amount. Looking at your new budget, you're going to be able to see areas where you might be able to cut back. You might also see categories where you need to increase spending. In doing this step, no one is suggesting that you come up with budget amounts that are unlivable. Think about going on a diet--if you try to restrict your calories excessively, what's the first thing you want to do? Krispy Kreme here you come, right? The key here is to be realistic. Are you paying money for a gym membership you never use, despite your best intentions? What about the $4 a day, every day, morning coffee you get before work, or your 5-cans-of-Diet-Coke-a-day habit? Chances are, your budget has some fat that can be trimmed. At the end of this exercise, you should have come up with a figure, a number of dollars that can be put toward debt paydown.Make a note of this figure. Day-to-day, if you don't want to keep taking note of all your expenditures, just write down what you spend in the categories you are trying to cut back. This will give you a very clear idea of how well you are doing, and, if you know you're going to go over your budgeted amount, it may help you decide to hold back on a purchase, . If your still unable to find money in your budget, you may be able to find it in your paycheck. Statistics show that the average employee pays over 30% in taxes. Meaning that if your salary is $50k per year, your take home pay is only $35k. There are millions of employees who have filed their w4 forms incorrectly which means that their job is taking out more money than they should. If you are interested in determining your witholdings visit this website http://www.kiplinger.com/tools/withholding/. You should review your filings with an CPA to determine your exemptions. Chances are, you can refile your w4 form and increase your paycheck almost instantly. However if all else fails, and you still can't qualify for a more exemptions than start a home base business to take advantage of the write offs. You must work them to make a potential profit but the tax write offs alone are worth it. There are a lot of businesses out there that you can plug into, but there is one that may be more helpful because their services revolve around getting you out of debt as quickly as possible using your same money, credit restoration, unlimited access to CPAs and Financial Planners, and building wealth, because while you are getting out of debt you should be building wealth.
6. Figure out how much you owe, to whom, and on what terms. Debt can often feel overwhelming because you really don't have a clear idea of how much in debt you really are. Gather your bills, and make a simple list or spreadsheet of all the debts you have. Write down all the pertinent facts, including name of the creditor, your total balance, your minimum monthly payment, and your interest rate.
7. Start paying it off. Take the debt paydown figure of money you trimmed from your budget in step 4, and apply it to debt repayment. It's a good idea to prioritize the debts to which you are going to apply this extra money. Do you have debts that are past due and the creditors are hanging out on your door step demanding your first-born? Do you have debts with exceedingly high interest rates? Consider these top priorities. Let's say you determined in Step 4 that you could comfortably trim an extra $250 from your monthly budget to go toward paying debts, and that from your list of debts in Step 5, you owe $2,000 on a store credit card that has an interest rate of 19.5%, $1,000 on a Visa with an interest rate of 11.5%, and $25,000 in student loans with an interest rate of 5%. You would want to pay the minimum on your low interest rate debts, and apply the bulk of your $250 to the highest interest rate, in this case, your 19.5% store credit card, despite the fact that the actual cost of the student loan interest is highest. Also, consider that if you are already paying a minimum payment of $50 on that high interest card, if you start sending $300 per month (the minimum you are already paying plus your debt paydown figure), once it is paid off, then you will have increased your debt paydown figure. The next creditor can get the amount they are already getting plus the $300. Each debt gets easier to pay off than the last.
8. Wash, rinse, repeat. Just kidding, but you get the idea. This process gets easier. Once you've figured out your spending and what debts you owe, keeping it up gets easier and easier. You'll refine your budget over time, increase the amount of money you can pay yourself (see tip below) and the amount you can put toward debt. Continue to pay off each debt in your priority list. As you pay off convenience cards and high interest credit cards, call those credit card companies and cancel those accounts.
9. Don't give up. Chances are you didn't get into debt in a day, and you won't get out of debt in a day. Quick fixes don't last, but learning how to manage your money can bring great peace into your life, and you can spend your mental energies on more fun things.Also checkout this company had some great feed back about them,
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