Believe it or not, a full 50% of households in the United States have credit card debt to the tune of $14,000 or more. The average American household credit card debt as of November 2013 was $7,123. These people are still in line at the movie theater, buying lattes and getting deliveries from Amazon. The vast majority of them don’t treat paying off debt as a priority.
The fact that you’re reading this article indicates that you’re not in this majority. You feel a sense of responsibility about your debt and want to be proactive about it. For many, debt can be a cause of worry and stress; the good news is there are concrete steps you can take to get out of debt. Start down the road to becoming debt-free by following these seven steps:
1. List Your Debts
Take the time to make a comprehensive list of all the debts you currently have, as well as their interest rates, monthly payments and any other relevant terms.
2. Prioritize Your Debts
Next, rearrange your list with the highest-interest debt at the top, then the second-highest interest debt, then the third, and so on. Resolve to send extra funds to the highest-interest debt first, then the second highest, and so on, working your way down the list.
3. List Your Expenses and Income
Writing down concrete numbers for your monthly incoming cash and outgoing expenses can help you to gain a realistic perspective on your financial situation. Be honest; write down every expense, from spray tanning to parking fees to those late-night trips to Taco Bell. When you really look at your spending habits, you’ll likely decide that a number of your expenditures are optional. You’ll also see how much money you have left over each month to pay down debt.
4. Check Your Credit Report
Getting a copy of your credit report allows you to know your exact credit score, confirm your debts and get a better sense of how to proceed. You’ll also be able to see if there are any errors on your credit report and have them corrected. All of the major credit bureaus offer a free copy of your report. Visit site for details.
5. Maximize Your Cash Flow/Income
Are you sure that you’re receiving all the income you can? Are there other employment opportunities that would pay better than your current wage? Other ways to increase income include:
• If you have a spare room, consider renting it out to a tenant.
• Have adult children living at home pay their share with room and board.
• Get a second part-time job. (Check the tax implications first; being pushed into a higher bracket could actually decrease your income.)
• Work overtime or try for a promotion at your current job.
6. Find Ways to Reduce Expenses
Take a good, close look at your expenses. Making some small adjustments can reduce your expenses dramatically over time. Some ideas include:
Reduce food costs. Cook at home as often as possible and bring a lunch to work. Eat lots of vegetables and lean meats.
Save on transportation. Car pool or consider public transportation. Even better, walk or bike to work or when doing errands.
Buy used or refurbished. When purchasing furniture or electronics, consider used or refurbished instead of brand new. Craigslist.com, Ebay.com and Amazon.com are all possible resources.
7. Negotiate With Creditors
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
Call or write letters to your creditors and let them know about your situation. Explain your intentions to get out of debt. Many creditors will respond empathetically and consider reducing your interest rate.