It is not easy to overcome a financial crisis or to avoid getting into debt. If you are reading this article, chances are you have already accumulated a certain amount of debt and are thinking that it is virtually impossible to deal with it. Read on to learn how to stop running into new debt and change your life forever.
Steps
Part 1 of 3: Manage Revolving Credit Card Debt
Step 1. Lower the interest rate
If you have good financial credibility, contact the bank that gave you your credit card and ask them to reduce your rate. This is a great way to lower interest costs and thus save money each month.
Step 2. First pay off the credit card account with the highest interest
If you can't get your interest rate lowered, you need to settle your higher-rate card debt first. This way, you reduce the amount of interest expense, lowering the debt on those credit cards.
Step 3. Consider getting a debt consolidation loan
If you have a good bank rating, you can consolidate your credit card debt with this financial product. It may be easier to manage, as it involves a single monthly payment, rather than several. In addition, this type of loan often has a lower interest rate than that required for a revolving credit card.
Step 4. Stop using this type of credit card
To make sure you get out of debt, you need to stop using them. Replace it with an ATM, so the money you spend is immediately deducted from your checking account.
Step 5. Whenever possible, pay more than the minimum payment
Revolving credit card payments are structured to allow financial companies to maintain cash flow for as long as possible. Avoid falling into this trap whenever you can, as it destroys your family economy and favors the lender, forcing you to pay installments much higher than the minimum set instead.
Part 2 of 3: Managing Your Money
Step 1. Develop a budget
If you really want to get rid of debt, you need to monitor your income and expenses, so that you learn to manage yourself and spend only what is strictly necessary every month.
- Make a list of all your sources of income. Consider all the ways you make money, be it paid work, investments, interest income, and so on. Add all your monthly income together.
- Make a second list of all monthly expenses. Remember to enter everything you pay each month, including utilities, grocery shopping, gasoline, restaurant dinners, study, and so on. Again, add up each item.
- Subtract the total value of your expenses from your total income. If you have more income than you go out (and it should be), the difference can be used to pay off debts or as savings, depending on your decisions.
- Make sure you stick to your budget each month. If you go overboard, you will have less money to accumulate as savings or to pay off debts.
Step 2. Earn some extra cash
To effectively reduce debt, you need to increase your income. You can look for a second job (if you are a salaried employee) or increase your sales (if you are paid by commission). Obviously, this solution "steals" a lot of time from your personal life, but it is necessary to get out of the abyss of debt.
Step 3. Cut down on expenses
Find ways to reduce your spending each month so you have more money to pay off debt.
- If you find yourself going to restaurants too often, try making most meals at home.
- Try to reduce your bills by using energy more efficiently. For example, do not use the air conditioner for the rooms on the ground floor, if everyone sleeps in the rooms on the first floor. Check that no electrical devices remain on when not needed.
- Learn how to take advantage of coupons to save money on grocery shopping.
Part 3 of 3: Seeking Professional Debt Settlement Help
Step 1. Go to a consultant or accountant
Sometimes, compulsive shopping associations provide the services of a professional free of charge to help people get their financial situation back in hand. The consultant may contact the financial companies you have contracted with and help you develop a repayment plan.
Step 2. Consider consolidating debt
If your home economy is completely out of control, your creditors may understand that little money is better than nothing. In this case, they may offer you a consolidation procedure, for which you will need the help of a consultant.
Know that this operation will negatively affect your credibility as a good payer; it will be taken seriously as non-payment or arrears
Step 3. File for bankruptcy
One of the less attractive options for getting out of the debt spiral is to file for bankruptcy, but remember that it will heavily affect your financial credibility. However, you may not honor the debt and the judge may write it off completely.
- If you opt for this solution, seek help from a lawyer who specializes in financial matters.
- Remember that your name will be on the bad payers list for about seven years.
Advice
- If you want something, save and then buy it. You should ask for a loan only for those items of absolute necessity (such as a house or a car). Don't take out a loan for furniture, small appliances, or holidays. If you can't afford to pay them in cash, it means you can't afford the expense.
- Use cash as much as possible. If you pay in this way, the psychological impact is greater than that perceived through electronic payments. You will feel like you are spending more and therefore can hold back from doing so.
- Do not consider debt consolidation agencies and consumer credit agencies as the first option. These should be the last resort! While they may be tempting, remember that trying to heal your financial situation on your own allows you to learn how to manage your money and avoid finding yourself in the same situation.
- You can obtain your credit report by requesting it from financial companies.
- Remember that the financial companies that issue credit cards are not your friend. Their purpose is to ensure that you are always in debt and have to pay the minimum repayment installment for the rest of your life; be aware that they treat your credit card payments as their income. For this reason, you should pay off the debt with each of them and then wait a couple of months (without using any other cards) before seriously considering closing your account. It is much better to use the ATM card issued by your bank and check your bank statement often. In this way, you can always use electronic money for purchases, but the cost will be immediately deducted from the checking account and you will avoid the spiral of debt. Also, if you close your revolving credit card account a couple of months after paying off the debt, you can stay on the list of good payers.
Warnings
- Avoid at all costs to ask for loans that provide for the sale of the fifth. This is a quick way to "plug" the problem but it will overwhelm you in a series of ever larger debts. Before accessing this type of credit, consider other options, such as that of contacting friends and relatives, requesting a loan from the bank by bringing other credit guarantees or contacting some microcredit association.
- Don't pay your credit card bill with another credit card. The interest rate of these operations, in general, inevitably leads you into a spiral of debt.
- Don't be rash. Closing a revolving credit card account could affect your level of creditworthiness as a debtor. You could reduce the length of your financial history and worsen your credibility in the eyes of the banks. Choose carefully the card to be returned. You can avoid this problem by keeping older cards and getting rid of new ones. Also, you need to consider which of these have the greatest impact on your debtor rating.
- Avoid giving too much personal information to debt collection companies, because everything you say will be recorded in a file. Limit the length of conversations and be concise. Don't be tempted to answer personal questions and know your rights.
- When you approach a financial company, make sure it is qualified and registered with the Chamber of Commerce. You can also consult the bank arbitrator's website to make sure it is not a defaulting institution.
- Compulsive shopping is a dangerous habit just like alcoholism or any other addiction. Spending money is a way of escaping or masking deeper problems. Get help from a therapist or seek out a mutual help group.
