Figuring out how to get out of debt is one of the main considerations in the country today.
Americans collectively owe more than $15 trillion in personal debt between credit cards, auto loans, mortgages, student loans and more, according to the Federal Reserve Bank of New York.
Studies have shown that almost every state is stressed about debt. This is the black dog of the financial world, and it touches most people living in America today. If you’re in debt the answer is to get out of it as soon as you can.
There are many ways you can become debt free. It’s not easy and it’s not going to be comfortable, but the sooner you do it the quicker you can start looking to your financial future.
1. Take note of what you owe
Believe it or not, many people struggling with debt have no idea of exactly what they owe and who they owe it to. They only look at the letters when they come through the door and make regular payments on these amounts. Financial ignorance is a huge reason why people get into these situations in the first place.
Go through your records and find out exactly what you owe and who you owe it to.
2. Is consolidating worth it?
Debt consolidation isn’t the answer to everything. In many cases consolidating your debt is a smart move. It can make things simpler to manage and you’ll actually see your total monthly repayments decrease. But you need to perform some calculations before you do this. Sometimes it can be better to let your repayments run separately.
There are plenty of websites that can provide you with calculators to help you decide whether it’s worth opting for debt consolidation or not.
Find out: Is a Debt Consolidation Program Right for Me?
3. Pay down your small debts first
The bigger amounts you owe are going to run for years, potentially. Get rid of the smaller debt before you do anything else. These are pesky and they will boost your credit score if you strike them from your record. They will also give you the confidence to keep managing your finances smartly so you can eventually get out of debt.
If possible, consider asking your creditors whether you can pay your debts off without a penalty. Most creditors just want their money back and will be happy to do this.
Find out: Deciding Which Debt to Pay Off First
4. Why did you get here in the first place?
Once you have taken note of what you owe and you’ve started to pay down some of the smaller amounts, it’s a good time to start thinking about why this happened in the first place. If you don’t learn some lessons, you’ll be doomed to make the same mistakes over and over again.
You have to think about why these things happened to begin with. Think about how you can make changes so you don’t start getting into deeper and deeper problems. Many households with high levels of debt find themselves there because they make the same mistakes over and over again.
Find out: 10 Reasons People Go Into Debt
5. Don’t borrow to pay the money back
The amount you owe will only grow if you insist on attempting to pay the money back by taking on even more loans. This seems like a good idea at a time when you can’t make the repayments, but it’s actually the worst thing you can do. You’d be better off missing a repayment than taking out even more credit.
If you can’t get out of debt now how can you expect to pay an additional loan later?
Find out: The Ultimate Guide to Loans
6. Should you ever declare bankruptcy?
This is a controversial issue because it does seem like a great way to pay your debts in one swoop. Bankruptcy should always be a last resort when your creditors want their money and you have nothing left to give. But you’ll have to pay a terrible price in return.
For a start, any assets you have, including your personal belongings, can and will be taken by a court. You’ll also stand no chance of getting any credit and it could leave you in financial ruin for years to come. If you absolutely have to do this to pay your debts then do it, but don’t think it’s an easy way to escape your obligations.
Find out: Should I File for Bankruptcy?
Last word – don’t bury your head
Never allow yourself to hide from high levels of debt. It will come back to bite you and you will have to pay your debts eventually. Most creditors will be happy to come to some sort of arrangement if you talk to them. Debt agreements with your creditors could potentially save you a lot of problems later.
