One way or another, you built your debt slowly. Whether it was going out to eat on a credit card and then paying the balance over time, or having an emergency hospital bill that you had to put on that card, you can still kill that debt over time. There are several ways to think about dissolving this monkey on your back. Here are some pointers to help you get started.
1. You must live within your means now. If you are trying to get rid of a debt load, the first step is to stop spending on your credit cards. On the web page, the Money Alert (http://www.themoneyalert.com/getoutofdebt.html), the first step mentioned is “Stop using your credit cards.” Since life changes can takes months to get adjusted to, do this for 4 to 6 months before you take the next step. You will be surprised by watching your balances go down.
2. After you have learned to live within your means – even if you had to take a budget management class to do it (I take them about once a year) – assess your debt. What is the highest interest debt? Is it for an asset you can get rid of? Is it a credit card whose interest rate jumped? Your first step may be to try to bring that interest rate down. Ask your lender to change the rate: call the phone number and when the representative says, “and how may I help you?” Say, “I’d like you to drop my interest rate.” You may get a “no”, but getting a “yes” will accelerate reducing your balances. Do this with every card. Creditrepair.com has an article on getting away from high interest cards here: http://www.creditrepair.com/debt/credit-card-debt/high-interest-credit-cards.html
3. Even if you do not get your interest rates down, start thinking about how to move out of the credit trap. The first piece of advice I got to get out of the credit card trap was to build a savings account. That way, any emergency expense I had could be applied against savings, not against a credit card. It took me years to learn that “emergency” did not equate to “out of money and I want to go out to dinner,” but instead to “car needs repair and I hadn’t budgeted for it.” But I did, and having a working savings account keeps me from needing to take on debt every time I hit a snag. Take $5 a week (visit the Latte Factor website if you think you do not have $5 a week to set aside, here: http://www.finishrich.com/free_resources/fr_lattefactor.php) or more if you can and tuck it into a savings account that is difficult to withdraw from. One of my favorites is my Ing Direct account, but a local credit union account would serve the same purpose. Do this for 3 or 4 months while you watch your debt load drop very slowly.
4. Once you are in the groove in these new habits, take a look at your debt load. You are ready to make a debt reduction plan. First, pay the same amount every month for debt reduction, regardless of whether your required payment minimums go down. You must send the same amount to creditors every month, allowing some growing amount of money to accelerate your payments and reduce your debt load quicker.
5. Then, follow a plan of your own devising. Most literature recommends paying down a high interest card first. Some plans suggest paying down your lowest balance. If your job is precarious or your payments so high that you can not buy groceries and pay bills at the same time, pay your lowest balance to free up cash.
6. Make a new budget. Make a good budget. Budget in fun things and carefully. Follow the budget. Take budget management classes, buy budget management workbooks, keep a constant eye on your cash flow. In just 2 or 3 months, you’ll be startled at how the spiral unwinds and how you are getting back on track money wise.
You can do this.