TIPS FOR GETTING OUT OF DEBT NOW!
By Judy Lawrence, MS Ed.

Getting out of debt now seems to be the national theme. Perhaps in your case this debt was not all related to unconscious overspending. There may be numerous reasons for accumulating your current debt including job loss, health issues and/or major unexpected house/car/family emergencies. Overall, the goal now is to get out of debt. The following tips will certainly help you make a significant dent in that debt load:

1. WHAT’S IT WORTH TO YOU?

Get motivated on the primary reason you are ready to take action on eliminating debt – (sick of the stress, want a new home, vacation or car, determined to put the children through college).

2. FACE THE FACTS

Identify and list ALL the debts (medical, legal, family, credit card, department stores, student, wedding etc) – showing the total due, the interest rate, finance charge AND fees for late payments or over-the-limit charges (these can range from $15 to $35 each time and then will have interest charged on that amount as well, in the total balance due). Total up the debt. Total up the finance charges and fees. Really take these numbers in. Of course this is scary, but very important for creating an effective plan and moving you to a debt-free life.

3. NEGOTIATE

Call all your credit card companies and tell them about all the 6-month 0% card offers you’re getting. Since you have been a long-standing cardholder, would they offer you a much lower rate? One woman recently had her interest rate lowered from 10.24% to 6.24% permanently. Three out of her four credit card companies were willing to lower their rates for her.

Call and ask them to waive the late fee. If you are usually on top of your bills and just got behind, often the creditors will work with you on waiving the fees – but you have to ASK. Most importantly, LET ALL YOUR CREDITORS KNOW your situation rather than just not paying or being late so they can work with you. No communication with your creditor is one of the worst things you can do.

4. DO THE 0 PERCENT DANCE

Use this option ONLY if you are very disciplined and on top of your paperwork. One late payment and the 0% prize is gone and the highest rate will apply.

Set your calendar to 2 months before the ending period and start making plans for rolling over the balance to the next 0% offer. You can also call the company and ask them to extend the time period for you.

5. START THE SHARE PERCENT DANCE PLAN

This plan will help you pay everyone equally based on your debt and amount of money available to pay the debt. It will gradually and methodically get you out of debt. Be sure to contact each creditor to work with you and diligently stick to the plan every month. Divide the total amount of debt by each individual debt to get a percent of the total debt, then determine the total amount of money disposable for paying debts each month and multiply this amount by the percent for each debt. As each debt gets paid off, re-do the calculation so more is applied to everyone.

6. ASK FOR WHAT YOU WANT

Life goes on – you still need haircuts, dental work, therapy, vet care and other services. If you have been with someone for years, explain your temporary situation of a job loss or reduced hours and ask if they will work with you. Many will lower their rates. One woman’s hairdresser lowered the rate 30% and the therapist 20%. Another woman put off going to the dentist until the dentist called and they negotiated a $5/month payment. Make those monthly payments religiously. If you arranged to have payments lowered to $5 - $10 a month for the various services, keep paying on a regular basis.

7. TALK TO YOUR CREDITORS

Most importantly, LET ALL YOUR CREDITORS KNOW your situation so they can work with you, rather than just not paying or being late. Failing to communicate with your creditor is one of the worst things you can do.

8. RETURN STUFF

What household, electronic, auto, clothing item have you bought that you haven’t really worn or used in the last few months? If the tags are still on, item still in the wrapper, take it back to the store. If you don’t have the receipt, often you can still get a credit for that store. One woman actually returned a blazer with tags she had for years and never worn to a large department store and was given a credit!
The trick, of course, is to utilize that credit only when you truly need something.

9. SELL STUFF

Is that extra car costing you license fees, insurance and maintenance costs?

Is the current car a gas guzzler? Sell it and buy a more gas-efficient vehicle.

Do you have a wall full of CD’s, books, videos and computer games never being used anymore? Take them to the resale stores, have a yard sale, go on the online auction sites or sell to friends. Are you paying storage fees for stuff you really don’t need or use anymore? Sell the stuff, make money and save money.

Be sure to apply all these extra funds to the debt payment.

10. USE YOUR TALENTS

Find a way to bring more money in and apply it ALL to the debt. Work overtime or take on a part time job.

  • Offer your services for a fee:
  • Help people with their computers
  • Assemble the boxed desk or toy
  • Help with home remodeling projects
  • Paint or wallpaper someone’s home
  • Be a tutor
  • Teach at the community college
  • Sell your unique crafts or beads
  • Sing at weddings
  • Be a photographer
  • Help novices sell their stuff on EBay


11. PAY A MINIMUM OF $10 EXTRA VS. ONLY THE MINIMUM PAYMENT

By making payments at least $10 over the required minimum on credit cards, you could save thousands on interest payments.

Example: $2000 balance, 19.8%, 2% Min. Payment = $40/month payment = $7636 in extra interest in 42 years!

One way to think of this “Will you be paying off Christmas of 2002 in 2044?”

Add .25/day (less than $10/month) to the monthly payment for savings of $4916 in interest and 28 years.

12. GET PROFESSIONAL HELP – BEWARE OF SCAMS

If you are asked for a steep fee or “donation,” given only about twenty minutes of “counseling” time or feel a sense of pressure in the conversation – flee!

Reputable non-profit Consumer Credit Counseling Services (CCCS) who are members of National Foundation for Credit Counseling NFCC) will spend more time with you to assess your situation and charge only a nominal monthly fee ($10-$30) and sometimes no fee for arranging reduced interest rates, eliminated fees and your debt repayment to your creditors.

13. WINDFALL SAVVY

Avoid the temptation to splurge this extra money and apply all small and large windfall money to debt. Okay, keep out a very small amount for a little treat if you must. Windfalls include financial birthday or holiday gifts, tax refunds, insurance settlements, rebates, bonuses or raises.

14. KNOCK DOWN STUDENT DEBT

According to Education Department, 39% of student borrowers will be paying 8% of their take home pay to college debt. Under the Stafford Loan program, if you borrowed more than $8334 and make timely payments on your first 24 months, you may earn a credit equivalent to the 3% origination fee you paid to secure the loan. Most private lenders will reward you with a 2% interest rate reduction if you are timely on the first 4 years of payments.

Authorize an automatic monthly deduction from your checking or savings account and you can get a percentage point interest rate reduction for public and private lenders.

Example: 10 year $17,000 loan at 8.25% = $8,021 extra in interest. Authorize automatic withdrawals and interest will be reduced to $6,265 – a savings of $1756.

When you start working, pay more than the monthly due on the debt.
Example: Borrowed $80,000 and pay back debt in 10 years with 7% interest. Payments would be $928.87/month plus $31,464 in interest. Add $250 to each monthly payment and pay off the loan 2 years and 9 months early and save $9,322.61 in interest fees.

15. EXPLORE CONSOLIDATION LOANS

Do this only if you have a number of different debts in high interest rates and can get a much lower rate for all your debt. Be aware that at least 70% of people end up getting in debt on their cards again when they don’t make any changes to their lifestyle.

16. BANK THE CHANGE

Dump all daily change in a jar and add a dollar. If you quit smoking, apply the same amount of money to the jar as you used to with smoking. If you used a coupon and saved money, put the savings in the jar. Each month or two, apply this extra cash to a debt. Take out a very small amount for a little reward for yourself.

17. DO THE OBVIOUS

Stop using all credit cards. (People spend 30% more when using cards then if they used cash.) Start using only cash or check – money you actually have.

Scale back on the “nice to have wants” and focus on needs.

Remember that getting into debt is a “no-brainer.” Getting out of debt takes smarts, patience, determination, discipline and willingness to change. Pay attention to all your spending and be conscious all the time. Shop at less expensive stores including the thrift stores (try the upscale neighborhood thrifts for some fun and reasonable prices.) Eliminate some of your expensive habits and replace with a creative inexpensive habit to meet the same needs:

  • Daily lattes
  • Browsing aimlessly in stores
  • Daily lunches out
  • “Big gulps” drinks
  • Extra hair, cosmetic, toiletry products when you already have a drawer full
  • Magazines, books, CDs, etc.


18. BE HUMBLE

Talk to your family about help – moving back home, help with the children, help with a debt – something. Talk to your friends and explain that finances are challenging right now. You really want to spend time with them, but in a way that will not cost you money at this time. Most importantly, know that all these changes will ultimately give you total financial peace of mind, which will be so much more satisfying than a piece of furniture.

Judy Lawrence is a Budget Coach and Counselor in Silicon Valley. Her best-selling book, The Budget Kit: Common Cents Money Management 4th Edition, sold over 350,000 copies. If you would like a 30-minute free phone consultation or to sign up for the free e-course or free newsletter or just find out more about her services, teleseminars and books, visit her website at www.moneytracker.com. You can also reach her by emailing judycents@moneytracker.com or calling 1-800-283-4380 (1-800-Budget-0).

 

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