How to To Eliminate Debt

With the doom of a recession lurking in the near future, financial stability is on the mind of many Americans and Global Citizens alike. In this post, I will provide tips on how to eliminate your debt so that you can begin building wealth.

The first thing you should do is to gather all of your outstanding bills. Request a copy of your credit report from all three Credit Bureaus; Experian, TransUnion, and Equifax. Be on the lookout for mistakes. Although all three credit bureaus should have identical information, that rarely is the case. If you do find a mistake, contact the agency immediately and ask them to correct the information. You may have to contact the original creditor.

Find out what your FICO score is with each bureau. This is the three digit number that determines the interest rate you pay on everything from mortgage to credit cards. To get the best interest rates your score needs to be 720 or above, however, if you are reading this article there is a fair chance that you fall slightly or well below this number. Your goal should be to increase this number. If your Fico number is less than 620 you are considered “risky”, and will therefore pay a higher interest rate.

Another very important step in this process is to devise a budget. First, sit down and write how much money is coming in and how much is going out, and where it is going. Decide to eliminate or cut back on unnecessary expenses. These could include switching from expanded cable to basic or regular tv (ouch, I know), but it needn’t be forever and you may even discover alternative interests you didn’t even know you had, not to mention the quality time you will have with your family. Decide to use coupons when grocery shopping. Many stores offer double coupon day and you would be surprised how much you can save with just a little time invested. Review your cell phone bill. How many minutes are you actually using. Are you throwing away valuable talk time at the end of each month or going over and incurring unnecessary overages? Find the best plan that suites you and your family’s needs.

If you notice that you’re heating and/or electric bill seem high, go through your residence and find ways to save energy. If you live in a cold climate, you may want to put plastic on windows that are letting in too much cold. You may want to invest a little cash into some door snakes that eliminate drafts from under doors. These are just a few ideas that will help you cut costs and free up funds that could better be used to reduce your debt.

Once you have scoured over your budget and eliminated as much unnecessary expenses as you can think of, it is time to attack that debt. The most important place to start is any high interest credit cards. If you are carrying a lot of credit card debt, or even not so much, but have a high interest rate, it will take what seems like an eternity to pay off if you only pay the minimum balance each month. But, let’s not get ahead of ourselves. I would like you to first contact your credit card companies. Tell them that you are trying to eliminate your debt and that you would like to avoid bankruptcy. If you have had any recent negative events such as loss of a job or injury, tell them so. Ask if they could reduce your interest rate. The credit card company would rather get some of your money than none at all. Most companies will agree. If at first you don’t succeed, try and try again. With so many companies outsourcing their customer service it can be very frustrating trying to get to the person who can really help you. You may want to start out asking for a supervisor or someone with authority to decrease your interest rate.

After you have tackled the high interest credit cards, approach other creditors that may have debt against you that has been sitting there for a while. Call the creditor or the credit agency that has taken over collection. Many of these companies will be willing to settle for a fraction of the debt if they know you are contemplating bankruptcy or are willing to make a one time large payoff.

If you don’t have enough money saved from your new budget, here are a few ideas to help increase your income: pick up a second, part-time job (remember, it doesn’t have to be permanent, just to get you out of debt), have a yard or garage sale with unwanted or unused items, volunteer services such as plowing or mowing for a neighbor, have a bake sale with items you make from scratch, start scouring garage sales and auctions for items to resell on Ebay.

The most important thing you can do to turn your financial life around is to PAY YOURSELF FIRST. What does that mean? It means that you take a certain amount, as much as you determine, a good starting point is anywhere from 10 to 20% of your take home pay. Invest this each month. Whether it is in stocks, mutual funds, cds, gold, or some other viable investment option, put your money to work for you. The stock market may be down right now, but eventually it will be up again. Use this opportunity to snatch up discounted stocks of well established companies that you know will be around in 5 to 10 years. There is a wealth of information available out there. You just need to make a conscious decision to change your financial future. It is in your hands and the time is now!