Getting out of debt can seem difficult especially if you have a huge amount of debt. However, there are several steps you can follow to get out of debt and live a debt free life. There are also several methods for getting out of debt. Which one would be best for you will depend on your financial situation. The most common methods for getting out of debt include debt consolidation, debt settlement, and filing for bankruptcy. Filing for bankruptcy is not always the best option because it will be in your credit report for many years and will adversely affect your credit score. You should exhaust all other options for managing your debt before filing for bankruptcy. If you choose to get out of debt by consolidating your debts, you should follow these guidelines.
Budgeting
The importance of budgeting can’t be stressed enough. When you are in debt, it’s important to save every penny and use it towards clearing them. First, make a list of your monthly expenditures and compare it to your monthly income. If your monthly expenditures exceed your monthly income, you need to look for ways to either increase your income or reduce your monthly expenditures. It is much easier for most people to reduce their monthly expenditures than to increase their income. If you want to reduce your spending, you need buy only those items that are necessary rather than those you just desire.
Evaluation
The next step is to identify the main cause of your debt and start taking corrective measures. Make a list of all your outstanding debts, interest rates and monthly payments. Look for the specific cause of the debt you’ve accumulated. For instance, if you’re always late on your monthly payments, the late payment fees you’ve been charged may have led to a huge amount of debt. Similarly, if you have a high interest credit card, this might be the main reason why you have so much debt. Big debt can also be the result of poor spending habits. If you are a shopaholic, this could be why you have so much debt. Similarly, impulse buyers accumulate more debt due to their poor shopping habits. If either of these applies to you and you want to get out of debt by consolidating them, you first need to change your shopping habits.
Determine how much you can afford to pay monthly
Debt consolidation means combining all your debts into one loan with a lower interest rate. If you’re considering debt consolidation as a way to get out of debt, you will need to come up with a realistic plan of how much you can afford to pay back each month on a debt consolidation loan. If you cannot afford to make the monthly payments on the consolidated loan, another good option for getting out of debt is debt settlement. With debt settlement, you pay only a portion of what you owe. Your creditors forgive the rest. However, you will probably need a debt counselor to negotiate on your behalf.
Credit report
Before you start searching for a debt consolidation company, get a copy of your credit report. Go through it carefully and isolate those debts that affect your credit score the most. These debts should be given first priority when you consolidate your debts.
Debt Consolidation Company
The final step is searching for a debt consolidation company. There are many companies out there. Some of them are legitimate while others are scams. Be sure to do your research to determine which would be the best debt consolidation company to approach.
