It can be stressful to be deep in debt. Still, if you’re patient, it’s possible to get out of debt and build credit. These steps will help you get there.
Write Down What You Owe
If you’re serious about escaping debt, you must first know precisely how much you owe. So, make a list of all your debts, including those in collection, noting your interest rate and monthly payments.
After adding up your obligations you’ll know the minimum you need to pay each month to keep up with your debt. However, if all you pay is the minimum, it will be almost impossible to pay it off.
Figure Out How Much You’re Able To Pay Monthly
Next, make a list of all your other expenses unrelated to your debt. Those can include groceries, utilities, rent, gas for your car, and your cell phone bill. Because some of these totals can vary from month to month, consider taking the average of multiple months.
The next step is to compare your expenses with your monthly take-home income. If the amount you have remaining after paying your basic expenses is less than the amount you need to pay on your debt, you’ll need to either find ways to save, consider debt consolidation, or increase your income.
On the other hand, if the total left over after paying basic expenses exceeds the base amount you need to pay toward your debt, figure out how much extra cash you want to put aside to pay on your debt monthly.
Lower Your Interest Rates
High interest rates can cause your debt load to quickly increase, particularly if you have plenty of credit card debt. It can be hard to pay off the principal when much of your payment each month goes toward interest.
Try calling your card issuer and see if it would be amenable to dropping their rate for a period of time, if not permanently. They might if you have a good payment history with them and solid credit.
Another option is to transfer outstanding credit card balances to a balance transfer card with a lower rate, or even zero interest rate. Credit card companies frequently tout promotional rates for a limited period if you agree to transfer a balance from a current card to a new one.
You may also want to consider a debt consolidation loan to lower your interest rates because this type of loan usually charges lower rates than credit cards.
Depending on your income and the kind of student loan you have, you might be eligible for a plan on StudentLoans.gov that will lower your monthly payment. Be mindful that you must be current on your loan debt to qualify.
This strategy entails going through a third party to pay your creditors a lump sum, typically an amount less than the total debt owed, to settle the obligation. Your credit will take a hit, though, since whenever you pay less than the total amount owed, the settlement shows up as negative info on your credit report.
Keep Up With Your Bills
Paying all your bills on time each month is one of the best things you can do for your credit.
If you find that you’ve been struggling to keep up with payments, you can pay down debt by putting extra money toward the debt with the highest interest rate, put extra cash toward the credit card with the smallest balance, and bringing collection accounts now.
Now you know how to get out of debt and build credit. If you stay the course, you’ll find a whole new debt-free life on the other side.