You’re deep in debt with several creditors, probably delinquent on one or more accounts, and you’re not sure how to get out of this mess. You don’t want to file for bankruptcy just yet. You believe there is some way to get yourself out of trouble.
First of all, if your lifestyle got you into credit trouble, you need to change your lifestyle to get out of it. Commit to shedding excess expenses, and hibernate if you need to. Go out less. Find inexpensive alternatives to cable TV. Find hobbies that will take enough of your energy to keep you from other costly habits (cable TV, going out to shows or the movies, going out to dinner). Buy a bunch of whole foods in bulk on the weekend and cook all your food at home. This might be a time to start a more wholesome natural foods diet: These foods don’t cost as much in sum as eating out or more processed foods. If you even have to sell off your home and maybe rent a smaller, cheaper place for a while, that might be your best option for saving a significant amount of money.
Here’s one idea that can occupy you and help your efforts: Get a side job and use that income to pay your debt. If you’re having a hard time finding the money in your budget to pay down debt, you may need more than a 40 hour income. Even working minimum wage for 12 hours a week can net almost $400 over a month, which if devoted solely to debt payments can really help knock down your debt. Or, if you have an oversized debt like student loan payments or a massive credit card balance, putting it towards those outsized payments can give you some financial cushion so you can make better payments on other accounts.
Find out if any of your debts have gone to collections. Seek the agencies out and work out a settlement as soon as you can. If they insist on payment for the full balance, demand they agree to a payment plan and let them know they are not getting their money otherwise. They want to get paid and realize you could just ignore them or file for bankruptcy. So if you show a serious interest in paying them, they will usually play ball. Stand firm and don’t let the rep over the phone push you around; any agreement has to be on YOUR terms, not theirs.
Make sure you pay towards all of your running balances on time, every month. If you have ever missed a payment, do whatever it takes to never miss one again. Paying on time is going to be your biggest ally in improving your credit score.
Pay at least the minimum payment PLUS a few dollars on every credit card. Banks and the braes punish people who only make the minimum payment, BUT their automated systems do not punish anyone who makes just a few bucks more than the minimum payment. In fact, if your minimum payment is $75, an $80 payment looks just as good as a $200 payment. So tack on that extra $5 to the minimum payment. A series of such timely payments will boost your credit score.
Focus on attacking one debt, whether the largest, the highest-interest, the one closest to the card max, or the one closest to getting paid off, with large mega payments. You’re generally best served going after the highest interest debt first (especially if your largest debt is a mortgage or student loan. If facing those debts, always focus on paying off the credit cards first). But knock one completely out.
Even after you pay off credit lines, never decrease the amount of money you spend on paying credit bills. Just take payments you would have used for paid off debts and put them towards the mega payment, which will accelerate payoff.
And, naturally, you should stop using your credit cards entirely. Make a budget on a spreadsheet and follow it to the letter, down to the penny. Pay for everything in cash. If you must use a credit card, say for getting a bunch of groceries for the fortnight, pay the added balance off as soon as you get paid.
This is going to be a long, deliberate and painful process. If you have more than $10,000 in credit card debt, it may take at least a year to see significant results. Even with mega payments you may not pay off a balance in full for a couple years. That’s a long time to shut yourself in and live as a minimalist, while working long and hard hours while putting all your extra money into your debt payments.
But what will eventually happen is that one balance disappears, then the next. And then suddenly you might get a low APR offer from a bank. You check your credit score and, lo and behold, your score has gone up. You might be able to visit your bank and seriously ask about an interest rate reduction on a credit card. You might be able to transfer a balance to a lower interest card, or your bank might be willing to offer you a low interest consolidation loan, putting all that debt into one place with a low rate, making payments cheaper and payoff quicker! You make the sacrifice of aggressive payment towards your debt because in the long run, it works.
It’s not going to be easy to pay off your accumulated debt. You’ve got to take serious measures to cut it down and make as much of it go away as possible. Short of bankruptcy, that’s the only way to get it to go away.