Between mortgages, credit cards, school loans and more, your debt load that seemed manageable when you first borrowed money might be turning into a disaster. Maybe you lost a job or have not received a raise in several years. It could be that your expenses are rising because you are raising a family. No matter your situation, this debt guide will help you learn how to get out of debt.
Managing Your Money
Whether or not you are facing significant debt problems, you can do many things to increase your income, lower your expenses, and free up money to pay down your debt and take care of other bills. Here are some proven strategies to help you take charge of your debt:
• Live on a Budget — The most basic thing anyone can do to get out of debt is to live on a budget. Many people avoid writing a budget because they think it will introduce constraints and keep them from spending money as they would like. In reality, however, the debt problems that result when you are not on a budget will tie your hands. As long as you owe money to a creditor, you are not free to use that money for something else.
• Increase Your Income — Get a second job, and you can increase your cash flow and give yourself more room in your budget.
• Get the Interest Rate on Your Debt Lowered — The interest rate you are paying has a significant impact on the speed with which you can pay down your loans. Lower your average interest rate, and your monthly debt payments will be less.
Basic Budgeting Advice
Creating a budget that keeps track of what you spend and assigns limits to how you use your money is liberating. Most people do not know how much money they have to spend when they are not on a budget. Without a good household budget, you will miss all of the waste in your current spending habits. Follow these steps to create a workable budget and free up money for debt relief.
1. Keep track of your income and expenses for one month.
2. After one month, analyze where you have spent your money and identify areas where you can scale back. These areas will be unnecessary expenses such as eating out and other entertainment expenses. Some people who offer debt advice tell you to eliminate these expenses entirely, but that is unwise. Without some fun money in your budget, you will feel overburdened and will not follow your plan over the long term. Cut back, but do not get rid of everything fun in your life.
3. List necessary expenses and subtract them from your net income. Total what you spend on food, housing, utilities and other required expenses, and subtract that amount from your net income. Do not forget to include charitable giving in your expense total. The amount left over is what you really have to spend on entertainment, consumer debt and so on.
4. Assign what is left according to the minimum debt payments you must make on your consumer debts. Assign money to other budget categories as well. If you do not have enough to cover all these expenses, you must take more serious debt relief steps such as credit counselling, debt settlement and so on.
Negotiating with Creditors
As noted, a great way to free yourself from debt is to reduce your debt payments by lowering the interest rates on your debts. If you are brave, you can contact your creditors directly and ask for a lower rate. Many creditors will give you a lower rate if you do this, especially if you are current on your payments. Should a creditor refuse, you can threaten to close your account and transfer your balance to another creditor. You can also explain your financial hardship, if you have one, as that may lead to a better response. But if your creditors will not budge, you may be forced to take a more drastic debt relief approach.
Your Debt Guide to Legal Debt Reduction Help in Canada
If the above steps are not enough to help you solve your debt problems, you should consider the following professional solutions for those who have been unable to figure out how to get out of debt.
• Credit Counselling — In credit counselling, you will get personal, one-on-one debt advice to help you write and live on a budget. Your counsellor will also help you negotiate with creditors to set up a manageable payment plan and lower your interest rates.
• Debt Consolidation — It is much easier to pay one bill each month than to send money to several different creditors. Debt Consolidation works by combining many debts into one by taking out a loan that is sufficient to pay off all your current debts. After this is done, you will be left with one payment and, in most cases, an interest rate that is lower than the average interest rate on all the debts you had prior to consolidation.
• Debt Settlement — Debt settlement is the best way to get out of debt quickly and affordably. A debt settlement company negotiates with creditors on your behalf to consider your debts paid in full for pennies on the dollar. In this process, the total principal you owe is reduced far more drastically than in any other option, and your credit is not destroyed. Interest rates are also typically lowered if you set up a payment plan, or you can choose a lump sum payoff.
• Consumer Proposal — A consumer proposal is a legally binding arrangement worked out by a bankruptcy trustee on your behalf. Often, the principal amounts that you owe can be reduced. You must meet specific requirements for this to be a viable option. One of them is that your total consumer debt must be no more than $250,000 ($500,000 for couples).
• Bankruptcy — Bankruptcy is the option of last resort, and it erases all of your unsecured debts. Although this may seem attractive, bankruptcy destroys your credit. There are also time-consuming, invasive paperwork requirements for bankrupt individuals.
Get Debt Relief Help Today
Some form of debt relief is the best way for you to pay off all your creditors. Fill out the online debt relief form for more information on the debt solution that will work best for you.