Debt Consolidation

I am often asked for advice on how to get out of debt and how to rebuild your credit. The first part to remember is that you are not alone.

Many Americans are in the same position you are when it comes to debt. Its annoying, never ending and can keep you from achieving your goals, short and long term.

Being in debt is not bad, its simply a temporary phase as long as you understand that you are in way over your head and need to fix the problem.

1) Damage Control
Before paying off debt, you need to ensure that you find a way to limit the damage to what has already been done. You need to find a way to level your expenses to ensure that you dont continue the damage.

2) Understand the extend of your debt.
Take a look at all your statements, calculate the total amount of debt you are in, and the interest rates of each card. Loans are not as important to pay off early as much as unsecured lines are, such as credit cards.

3) Prioritize
Now that you know how much you need to pay off, prioritize your cards in 2 ways.The first is from smallest balance to largest balance, the second is from highest Interest rate to lowest.

4) Act on the problem
You have two ways you can go about this. You have to be honest with yourself if you want this to work. If you are self motivated and believe in yourself and find that you don’t need a constant coach to keep you on track, then start paying off the high interest cards first. If you are in need of motivation and a booster from time to time, then start paying off the smaller ones first, so you can see yourself progressing and actually feel motivated as you see the cards and the balances going away.

5) Make deals with your banks
Sometimes, paying off debt is not enough, and with delinquencies, your bank keeps increasing your rate and keeps you on your toes as your finance charges pile up and keep you from moving ahead. The worst part, you have a limited time before they charge off your account.

What most people don’t know is that banks take huge losses on charged off accounts and they pay huge fees when they send items to collection. So the reality is that if you talk to your bank and make deals with them, they will help you get out of debt by freezing your account, keeping it from charging off and allowing you to make payments on a plan that you both agree with. This is a great way to get out of certain credit accounts that seem very difficult to manage due to high rates. I encourage you to not use this method unless you cannot afford to make payments and will default. This will not help your credit score as it will show up on there as a frozen acct

6) Do not use debt consolidation services
As much as I like to believe that they are here to help, they are not very effective at helping as your credit is pretty much destroyed by the time they are done. Their tactics are no different than what you can do on your own if you are organized. They call your banks, freeze your accounts and then negotiate your payment plans for you. You don’t have to go to that extend right from the start and often your credit doesn’t have to suffer from it. You can do just as much on your own. Don’t under estimate your negotiation powers.

7) Stay focused
The hardest part of getting out is staying focused during the whole process. Find ways to reward yourself every time you pay off a card in full. Sometimes it pays to spoil yourself in order to remain motivated and continue your quest to freedom. Make sure you don’t go in debt when spoiling yourself, buy it in cash, it feels better.

8 ) Set a time table
Give yourself a time table to pay off each card, once you set a date, make sure to meet it, it will motivate you and keep you focused.

9) Fix your credit
Once you are done paying off your debt, you may or may not have impacted your credit in a negative way. It is important to fix your credit as you will need to make sure you can qualify for important life purchases. To fix your credit, simply read my other article on credit to understand what important steps you need to take to help yourself.