Digging Yourself Out of Debt With Your Credit Intact

There are a lot of ways to mire yourself in debt. Buying a home, for example, is a great way to find yourself hundreds of thousands of dollars in debt. A car is another large purchase. Medical bills are a common cause of overwhelming debt. And, yes, living via credit and not carefully considering your spending is on the list as well. The point is this: if you have managed to rack up a formidable amount of debt, it is easy to panic and feel like you are all alone in the world and that you won’t ever find a way to clean up the mess you’ve made.

Image credit: SAAST

 

Let us be the first to say: you are not alone. Millions of people are standing at the foot of crushing debt mountain and trying to figure out which step to take first in conquering it. Next, having a lot of debt isn’t necessarily a huge mess. In fact, if you manage it well, that crushing debt that feels like a burden right now can actually be a huge asset to your credit. Of course, figuring out how to manage it is where most people tend to stumble.

Here’s how to not be one of those people:

 

Educate Yourself

One of the reasons that debt seems insurmountable is that as soon as you pile some up, people start whispering in your ear about how terrible debt is, and how your life will be ruined if you miss a single payment or only pay the minimum due. Say the experts in Lexington Law’s Credit Repair eBook, “[People] paint a picture of a brick wall that is seven years tall and three credit bureaus deep. They cast the impression that 'time is the only antidote to bad credit' and they discourage any talk of credit improvement prior to the day, almost a decade in the future, when the negative credit listings begin falling off of the credit reports on their own.” They tell you horror stories of what they’ve dealt with at the hands of collection agents and shady lenders. It’s the stuff of nightmares.

This is why it is important to learn everything you can about credit, debt, and the way they work together to shape your financial situation. This is knowledge that will help you stay calm when the proverbial wolves are at your door.

Image credit: National Post

 

Finalize Your Numbers

The best way to really tackle your debt is to figure out to whom you owe money and how much you owe. The best way to do that is to get copies of your current credit report. Order your reports and then go through them. Challenge every single mistake that you find in the details and ask the creditors and lenders listed to verify your debts. This is the best and only accurate way to get a clear picture of what you owe.

 

Put Together a Budget

Grab the Advil, your accurate credit reports and some paper or your laptop. Make a list of all of the accounts with balances and your minimum monthly payments. Add in your monthly expenses like utility payments, grocery costs, transportation costs, etc as well as some discretionary items like clothing allowances, drinks with friends, etc. Total up the amount of your monthly payments. This is the minimum amount of money that you need to bring in to keep your accounts current and your bills paid. To really make a dent, add 10-15% on to your credit card and loan payments. This way you’re knocking out interest as well as paying down your balance.

Side Note: many people, when tackling debt, decide to deny themselves any discretionary spending. Don’t do this! Figure some discretionary spending into your budget so you won’t be tempted to blow off your bills when you get fed up with trying to be responsible.

 

Adjusting Your Numbers

Many people, when they put together their budget, realize that the money they have coming in does not cover the amounts they need to pay. This means that you need to find ways to bring in more money while simultaneously reducing what you’re spending.

When you’re adjusting your numbers, don’t forget to talk to your creditors and lenders about adjusting your payments and interest rates. If the idea of doing this yourself freaks you out, you can hire someone to help you negotiate your numbers and put together a workable budget.

 

As you chip away at your debts and make your payments, you should see your credit get better. And then, the better your credit, the more room you have to negotiate your debts down even further! You’ll qualify for lower interest rates, consolidation loans to make payments easier, etc. So, instead of panicking, get to work!

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