For whatever reason, you're in debt. It could be school loans, credit cards, store cards, sales financing, lines of credit, pay day loans or whatever. We're here to help, not judge.
As much as you'd like to, you can't ignore it. Nor can you avoid it. But you can get rid of it. It requires acceptance, acknowledgement and a dash of discipline. But it's a lot easier than you think. Once done, you'll feel a thousand times better.
So, here's a 10-step plan that will undoubtedly help you tackle your debt:
1. List Your Debts
First step is to assess the damage. Make a list of all your debts. Include the name of the lender, the size of your current balance, your interest rate and the minimum monthly payment.
As a fail safe, you might also want to check your credit report to make sure there aren't any lingering debts you're not aware of.
2. Transfer Your Balances
You may have a bunch of credit cards with interest rates from six percent to 35 percent. We have to cut your interest rates so your debt gets cheaper, and more of your monthly payments get applied to your balance as opposed to interest.
The easiest way to do this, if you can, is to transfer your credit cards and store cards to a balance transfer credit card with a zero percent promotional interest rate. There are tons of them out there. Some for three months, others for 20 months. Get the one with the lowest rate, longest term and lowest transfer fee. You can continuously surf, from one zero percent rate offer to the next.
3. Negotiate Interest Rate Cuts
Do not hire a debt settlement company. Do what they do. Call your creditors, tell them you can't make your payments, and ask for an interest rate reduction.
Credit card companies are very used to it. They can easily cut your rates from 19.99 percent to 11.99 percent or lower. That will dramatically reduce your interest costs, and make your monthly payments smaller.
4. Negotiate Minimum Payments
In addition to a rate cut, or instead of a rate cut, if your lender won't budge, see if they'd be willing to reduce your minimum monthly payment. While this won't make your debt any cheaper, it will make it more affordable, give you some breathing room and prevent you from defaulting.
5. Snowball Strategy
With this strategy you pay down your debt with the smallest balance first. This creates positive momentum, and gets you on the path to success, making it more likely you'll stick with it.
To do this, take the list of debts you made in step one. Rank them by size. Then, after you've made the minimum payment for each of your debts, use any excess cash to pay down the smallest debt on the list. After that debt has been paid off, rinse, wash repeat.
6. High-Low Strategy
With this strategy you pay down your highest interest debt first. This is the best strategy to lower the cost of your debt.
To do this, take the list you made in step one. Rank each debt by interest rate. After you've made the minimum payment for each of your debts, apply any excess budget you have to the debt with the highest interest rate.
7. Waste Removal
Go through your credit and debit card statements from the last 12 months. Review all your transactions and cancel any unnecessary subscriptions or recurring charges (i.e. Amazon Prime, Netflix, NY Times Wine Club, Identity theft insurance, credit card balance insurance). Cut what you can.
Also, take a look at some of your larger monthly expenses and renegotiate those, as well. Expenses like phone, internet, cable, car insurance can easily be cut. Don't be afraid to finally get rid of your landline and cable. You're ready. Whatever money you've freed up, use to pay down your debt.
We all have a lot more stuff than we actually use. Whatever you have no need for, sell. One man's trash is another man's treasure.
Go on Craigslist or eBay and sell your toys, bikes, golf clubs, snowmobile, ATV, TV, CDs, baseball cards, video games, etc... You can make hundreds, even thousands of dollars. Apply all of your earnings against your debt.
9. Say No To Plastic
Stop using your credit cards. Don't cut them up because you may need them for things like hotels or car rental reservations. But put them in a difficult to reach place, like your grandmother's underwear drawer.
Don't use your debit card, either. Studies show that when we use plastic we spend more than we anticipate, and we tend to be willing to spend more per item. So whether we're using credit or debit, we spend more than we otherwise would. That means it will be harder for you to budget, and you'll have less money to pay down your debts every month. Which brings us to our last step.
10. Get Some Envelopes
No plastic means you're going back to cash. Put your monthly or weekly spending budget into an envelope of cash. Create a separate envelope for each budget item like groceries, gas, entertainment, restaurants, etc. Take out however much you need for the day, and keep track of how much you have left.
Now that you have a little more breathing room and you're making your payments on time, you'll see your credit score improve, which in turn will lower your cost of debt and make cheaper alternatives available to you.
Hopefully, you'll be disciplined enough to only take the bait for those offers that will make your current debt cheaper. Don't take on any more debt. Save your money. Spend what you have, not what you think you'll have.