What are the top three steps you can take if you have debt problems?

Answer 1

If you are in debt and are truly serious about getting out of debt, and even getting ahead, you have to be totally committed to a plan. A problem like this won't solve itself, nor do the debts or bill collectors just go away. And, while some think filing bankruptcy is the best or easiest way out, it can lead to future problems. So for most people, the best thing to do is to find a way to budget yourself, pay your debts, and have money in the bank.

The benefits will last you and your family a lifetime. But this is something you may have to remind yourself of from time to time along the way to keep from feeling as though you are depriving yourself, because you are actually doing the very opposite. You are securing your financial future for you and your family, and, if done properly, can have you debt free in a relatively short time.

Step One: Make a list of all debts and monthly expenses on one side, and a total of all income on the other. Be sure to list all expenses, even the smallest ones such as that daily cappuccino. The debts will obviously outweigh the income, but that's the purpose of taking the following steps.

Step Two: You have to be committed to making some sacrifices, such as cutting out all luxuries, but keep in mind your goal is to get you out of debt and put money in the bank, and that you're doing this for your financial security. And remember, the benefits and payoff will last you a lifetime.

Once you're out of debt and have a 'safety net' in the bank, you can eventually go back to some of the luxuries. But remember, some of those luxuries may be what got you in debt in the first place, so you need to be very selective as to which ones you choose to go back to. But for now, you have to come up with a strict, but doable budget, cutting out all unnecessary items, services and purchases, while utilizing as many ways as possible to save money. And the entire family has to be in on the budget plan, but don't use budget 'rule' with them because they may not be as receptive to it if they see it as a 'rule' instead of a 'plan', especially teens.

Some examples of unnecessary expenses
movies
eating dinner out
club memberships
cable tv
shopping (buy only items which are absolutely necessary)
cell phones (not everyone in the home *has* to have a cell phone)
take out food (bring your lunch from home instead of going out for lunch)
smoking (it will be hard to quit, but in addition to saving money, it can save your life)
alcohol (even a six pack of beer or a bottle of wine a couple of times a week adds up)
internet (if you aren't using a free internet service, cancel it and use a free one)
magazines (you can often read these at your library, or check out a book to read)

Utilizing ways of saving money
Plan your menu for the week and do your weekly grocery shopping based on sales and coupons. You can even print coupons from many different sites online, and it's free. There are thousands of serious 'couponers' who spend next to nothing on food because they have learned how to get the maximum benefit from coupons. If you plan your grocery shopping on sale days, you will maximize the savings. Do all your grocery shopping and errands in one trip to save on gas, saving the grocery shopping as your last errand. Also, you can even go to our home page and, at the bottom of the page, click on "Coupons" for free coupons right here!

Cut up all credit cards - every single one - so you won't be tempted to use them in a 'weak moment'. However, if, for some reason you feel you must keep one card, give it to a trusted family member or friend to hold for you and tell them what you're doing. This way you will be held accountable if you ask them for your card so you can make a purchase, which will make you think twice before doing so. But if there is no one you would trust with your credit card, then place it in a plastic bag, sealing out all air, then put it in a large container of water and store it in the freezer. This will give you time to rethink that purchase while thawing out your credit card. It's amazing how many people change their mind about that 'necessary' purchase while waiting for the card to thaw out.

Other obvious ways of saving money are things such as turning up the thermostat in warm weather and turning it down in cold weather. Ceiling fans help keep the rooms much cooler in the summer, and in cold weather you can wear a sweater. Do only full loads of laundry, as well as only full loads in the dishwasher. Keeping the filter changed on the heat/air unit really does make a difference, so be sure to do that, too.

There are many other things you can do to save money, you just have to give it a bit of thought, and get creative, as well. If you have children you can make it a fun challenge for them, which will make them feel they are contributing. This will not only help them to feel included and be willing participants, but will save even more money.

For those who qualify, there are government programs that can help with electric and heating bills and phone service. You can call your local utility and phone companies to see which programs you may qualify for.

Once you cut out all unnecessary expenses, you will be surprised at how much money this can free up for you each month. You literally have to be willing to cut back to the bare bones to do it, but I promise, it will pay off in the end.

Step Three: Start using the extra money you've saved in step number two to pay off the debts, beginning with the smallest debt and working up towards the largest one.

For example: Let's say you have a bank loan for $2,000, a Sears charge account for $3,000, a Master Card charge account for $10,000, a Visa charge account for $15,000, a balance of $20,000 on your car loan, and a $150,000 balance on your home mortgage, which is a total of $200,000 debt. So what you're going to do is to pay off the $2,000 bank loan, then the $3,000 Sears account, then the $10,000 Master Card, and so on - from smallest to largest.

While continuing to pay the monthly payments on all of these (in addition to your regular expenses such as lights, insurance, food, etc.) the first one you would pay off would be the $2,000 loan. But you don't pay just the regularly scheduled monthly amount - you use the money you've saved from Step Two and pay four or five times the monthly payment, or even more if you can. The point is that you pay the absolute most that you can each month. That way, you will get the bank loan paid off very quickly, and will not only have one less debt, but will now have even more money to pay on the other debts.

Now we focus the Sears account for $3,000; you take the amount you were paying on the bank loan and add it to the Sears payment. Now you're not only paying the monthly amount on the Sears credit card, but also adding what you were paying on the bank loan with it. So this way, your Sears account should be paid off in just a few months, leaving you with two less debts than you had when you started. And you will have saved a small fortune in the interest that you would have paid had you paid only the minimum monthly payments.

See how quickly you've already gotten two of the debts paid off? Feels good, doesn't it? Ok, let's keep going. Next, you start on the $10,000 Master Card debt. You take what you were paying on both the bank loan and the Sears card, combine it with your regular monthly Master Card payment, and it, too, will be paid off very quickly. You will then have all credit cards and the bank loan paid off and can then focus on paying off your car, adding what you were paying on the bank loan and the credit cards to your monthly car payment.

And if you were really diligent in cutting back on unnecessary expenses, adding the money you saved to those payments, you will have a large amount to pay on your car each month. So imagine how quickly you can now pay off the balance of your car. And after that, you owe on nothing but your mortgage. So imagine how good it's going to feel when you get it paid off, and even paid off early, at that!

But if you have gotten behind on your mortgage payments, you need to talk with someone with your mortgage company to explain your situation and your plan, and ask if they will let you pay just the interest on the mortgage until you get the smaller debts paid off. Most lenders would prefer to do this because they would rather this than to be stuck with yet another foreclosed property. This way you get to keep your home and they get their money back. It's a win-win situation for them and for you. Just keep in mind though, if you do go this way you will still have the principle payments tacked on at the end of your mortgage.

So now you take the combined amounts of the bank loan payments, the credit card and car payments, add them to the regular monthly mortgage payments, and start paying off that mortgage. If you continue doing this every month without fail, you will have your mortgage paid off at least several years before scheduled. For example, if your original mortgage was for 20 years, you should now be able to pay it off in half that time - if you've stuck to the budget plan. You will also save a lot of money in interest on the mortgage, just as you did on the bank loan and credit cards.

You're now debt free with everything paid for, including your mortgage, so it's time to start saving. So you take the FULL amount you have been paying on the mortgage and 'pay yourself'. Yes - yourself. With the combined payments of the bank loan, the credit cards, the car note, and the mortgage, that is quite a large sum of money each month. I know by now you will be tired of making sacrifices but if you take just a few more months and put that money in a savings plan of some kind, you will have a very nice nest egg for emergencies, for your children's college, etc. It's recommended that you have at least six months of your total gross income in savings, so you need to save at least that much or more.

You are now debt free, you have money in the bank and it feels so good, doesn't it? You can now have your cable tv turned back on and enjoy it. You've earned it.