How to Get Out of Debt: A Step-by-Step Guide
If you’re heavily in debt, you’re not alone: A survey by GOBankingRates found that the average American is $ 63,000 in debt. Whether your debt is from student loans, credit cards, mortgages, auto loans, medical bills, or any other form of debt, it can seem like you can’t get out of it. But if you make a plan to tackle your debt head-on, you can easily get out of your current financial situation.
Related: 30 Ways To Get Yourself Out Of Debt
Be aware: what not to do when trying to get out of debt
Before you begin the process of getting rid of your debt, it is important to know exactly what you are dealing with. Gather all of your credit and debt information, including:
Your most recent statements of all outstanding loans and debts including student loans, medical bills, etc.
Your credit card statements
Your credit report, which you can get for free each year through AnnualCreditReport.com
Your credit score, so you can know if you qualify for a debt consolidation loan or lower interest rates
Once you’ve gathered all the relevant information, follow this step-by-step guide to paying off your debt.
1. Find out how much debt you have
Having a clear vision of how much you owe and to whom will help you deal with your debt, and might even make it more manageable. Compile a list of all your debts that includes the following:
The name of each creditor
How much you owe
The interest rate on the debt
The minimum monthly payment
Your credit card statements also show how much you’ll need to pay each month to pay off all of your debt within three years. Include this number on your list as well.
Read more: 16 key signs you’ll still be in debt
2. Lower your interest rates, if possible
With high interest rates, your debt will continue to grow faster, making it harder to pay off. One way to lower your interest rate is to transfer a balance to one credit card with another bank. Some credit cards have 0% APR for 18 months, so you can use this period to pay off your balances without your debt increasing each month. However, it is important to note that there is sometimes a 3% to 5% fee for balance transfers.
Another way to lower your interest rate is to call your credit card company or lender directly and ask for an interest rate reduction. If you’re a long-time customer, they might lower your rates to thank you for your loyalty.
Finally, you can use a debt consolidation loan to combine all of your credit card payments into one payment with a lower interest rate. However, keep in mind that a longer loan means you will be paying interest over a longer period, which could end up costing you more. Do the math to make sure the consolidation is worth it before you commit.
3. Calculate your monthly payments
Come back to your list. Add up the three-year repayment amount for each of your credit cards, plus the monthly payments for all of your other debts. This is the total monthly payment that you should aim to make each month.
Read: How to keep your financial planning on track in 2021
4. Submit an action plan
Once you know your total monthly payment, determine if this is something you can actually pay each month. If it’s not possible to make this monthly payment, meet with a bankruptcy lawyer or credit counseling agency to determine your next steps.
If you can make your monthly payments, or if you can find room in your budget by cutting unnecessary expenses, follow these steps:
Choose which debt to pay off first. In most cases, you should focus on paying off credit card debt, as interest rates on credit cards are typically higher than interest rates on student loans, car loans, and more. mortgages. Make your credit card debt, or the debt with the highest interest rate, your priority debt.
Consider setting up automatic payment for minimum balances on all other debts.
Try to pay off as many senior debt as possible each month.
Once your senior debt is paid off, choose another debt to focus on and follow the same steps until you’ve paid off all the debts.
5. Track your progress
If you have multiple sources of debt to repay, it’s important to monitor your repayment progress each month to make sure you’re following your goals. Once a debt is paid off, focus on your next high priority debt until everything is paid off in full. As you move through the refund process, you should:
Keep an eye on your credit rating to see if it improves. Your credit score is a good indicator of your financial health.
Consider doing a balance transfer or credit consolidation if you haven’t already.
If you follow the plan of action, you will strive to free yourself from your debts. If you’ve decided that you need extra money to pay off your debt, consider working more hours at work, asking for a raise, finding a second job, or taking a casual odd job to earn extra money to pay off. debt.
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Last updated: August 24, 2021
This article originally appeared on GOBankingRates.com: How to Get Out of Debt: A Step-by-Step Guide