A lot of debt consolidation agencies are out there, many of which employ less-than-honest techniques to help you get rid of debt. At least in theory. The truth, however, is that it's possible to get rid of debt legally and effectively if you're willing to follow a plan.
Step 1
Find out how much you owe. Make a list of all your debts, organizing them from the smallest to the largest or by interest (the highest on top). Include all debts, no matter how small. If you don't know the exact amount remaining, call your debtors and get the real numbers. Don't guess.
Step 2
Develop a cost-cutting plan. A budget is essential to get rid of debt. You need to know how much money is coming in and where you're spending it. Ideal places to reduce expenses are entertainment, utilities and groceries.
Step 3
Ask for a reduction on your interest rate or request late fees to be forgiven. Chances are some of the companies will agree, especially if you have a large amount of debt. Small breaks like this can make a world of difference.
Step 4
Make higher payments. Pay the minimum amount due on each debt every month, but make a small extra payment to the debt at the top of the list. Once that debt is completely paid off, move to the next one.
Step 5
Make extra payments. Every time you have some additional cash (because of an unexpected bonus, a larger-than-normal savings or overtime), make a payment toward one of your debts. Even if it's just $20 extra, numbers add up in the end.
Step 6
Consider a second job. While thrifty living and budgeting are essential to managing debt, you may need more money than what you're currently making if you want to cover all your expenses in full without incurring more credit card debt.
Step 7
Build an emergency fund. The idea of putting money aside may seem strange when you owe thousands of dollars, but an emergency fund can prevent you from incurring more debt next time you run into an emergency. Put aside a small amount each paycheck, even if it is only $20 or $30. When an unexpected expense comes up, pay for it from this fund, rather than using a credit card.
Tips and Warnings
- Surrounding yourself with like-minded people is essential to achieving your goal. Look for support groups, both online and off, to get feedback and help you stay on track.
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