Top Tips to Get Out of Debt

Getting out of debt takes patience, analytical savvy, financial knowledge and a good dose of personal commitment. If you're currently saddled with debts and can't figure out where to start, taking baby steps to clean up your credit and consolidate existing debts can be helpful. You also should track your spending meticulously, creating a personal budget, and seek the expertise of professionals as varied as financial planners, debt advisers and certified financial managers.

How Do I Check My Credit History?

Checking your credit history is a good way to start getting out of debt. By knowing what's in your credit file, you can determine the total amount owed and the related lenders. Don't worry about paying for a credit report; by law, you're entitled to one every 12 months from each of the top three credit reporting agencies – Experian, Equifax and TransUnion.

Top Tips to Get Out of Debt

Can I Track My Spending Efficiently?

Tracking your spending can help you figure out items on which you tend to splurge as well as those you are doing a good job controlling. You can monitor your expenses effectively through manual intervention, online or through a financial institution. Manual intervention means you write down the cost of everything you buy, keeping receipts and transferring purchase data onto a computer or into a notebook. Online expense tracking is also an effective way, and portals such as Track Every Coin provide free tools to manage personal expenses and access your accounts from anywhere. Banks also provide spending reports free of charge to clients, so talk to your financial institution and learn more about its spending-tracking features.

Who Can Help Me Get Out of Debt?

Various groups can help you get out of debt, giving you valuable advice on your way to financial freedom. Contact your local Better Business Bureau branch to learn about debt management resources available in your area. You also can talk to your state's Department of Financial Services, which can give you a list of businesses and nonprofits that provide debt management advice. If you carry a high debt load, seeking the expertise of a professional, such as a lawyer or certified public accountant, could be a smart move. Other good resources include your state's consumer affairs bureau and members of academia, such as university professors, who often provide pro bono debt management advice.

Do I Need To Create a Budget Plan?

Creating a personal budget to track your expenses and gradually get out of debt is a smart move, similar to what online tools and banking reports do. But this time around you're the one creating the template from scratch and inputting data in it. A budget plan typically has two sides: one for income and the other for expenses. In the income category, list things like salary, earnings from contract work, investment gains and interest from savings accounts. In the expense category, put expenses as diverse as groceries, interest, entertainment, gas and utilities. At the bottom of your budget, calculate your monthly surplus – or net loss, if expenses exceed income. Microsoft also provides free Excel templates to help consumers input and track budget data over time, say, a year or quarter.

Is Consolidation or Settlement Right for Me?

In a debt consolidation plan, a borrower combines multiple amounts owed several lenders into a single debt administered by one creditor. In other words, instead of paying 10 different bills every month, the debtor pays one. In a debt settlement initiative, a borrower makes a one-time payment, usually lower than the initial debt amount, and the lender forgives the remaining debt. For example, the creditor might agree to forgive 40% of the debt as soon as the debtor makes a payment representing 60% of the amount owed. Contact your state's Department of Financial Services to learn more about debt settlement and consolidation agencies, and try to distinguish those that are nonprofit from those that charge a fee for their services.

Recap

You can gradually get out of debt by following a five-step plan, making sure to reach out to professionals versed in the subtleties of debt management. An effective debt administration plan includes checking your credit history, tracking your spending, seeking help when needed, creating a personal budget plan, and opting for consolidation or settlement. But getting out of debt ultimately means paying off whatever you owe, be it in small increments or a one-time lump sum. American financial author, debt-help coach and motivational speaker Dave Ramsey says that it's best to attack small debts first before jumping to larger bills.

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