I’ve had a few people lately ask what to do if you are in too much debt in order to get out from under.
I am usually very frugal and don’t like to be in debt – though it snuck up on me a couple times when we didn’t have enough in savings to pay for some unexpected expenses like medical bills and dying appliances. I am actually working through an instance right now.
Here are my suggestions:
1. First, get out a piece of paper or your financial program like Quicken. Enter each debt you have and next to them each interest rate and minimum payments. Now add up the total debt at the bottom. In order to fix your debt problem, you need to face it. You’ll probably be shocked at the amount. Don’t beat yourself up about it. You know your mistake now – look to the future. And if you are in a partnership – come clean. Admit you were wrong and ask for help. Work out a plan together.
2. Next, find out how much money you have to work with. Create a simple spending plan. The automatic savings plan is the most important. Unless you have savings, any time an emergency arises you will end up back in debt.
3. Decide how to get some extra money to make a big initial payment for your debt. You can sell a second car, cut digital cable, stop various monthly subscriptions, sell your clutter, work extra hours for a couple months. Being in a lot of debt lacks financial integrity – so we want to get that back as fast as possible. And it may require some sacrifice of time and things for awhile.
4. Decide what you are going to quit buying in order to save money. Do you really need anymore clothes for a season? How about books that you can get from the library? DVD rentals? Going out to eat? Magazines at the checkout? Designer coffee? Most of us have plenty of stuff. We don’t need more.
5. How much money do you have each month to put against the debt? You can find out using your spending plan and what you have decided to save on.
6. Now put your information into the Quicken Debt Reduction Planner. It will show you exactly what you need to pay to get out of debt the fastest. Put this plan with your bills. And use it every time you pay bills.
7. Freeze your credit cards and vow not to use them again until you are debt free. If you are using them monthly and not paying them off, you are spending beyond what you make. And we know where that leads. If you can’t make your bills without using a credit card – then it’s time for some serious changes. Whether that means downsizing your house, getting a part time job, selling a car or whatever it takes. Too many people think they can get out of serious debt without making any major changes. But, that just doesn’t happen.
8. Get in a good mind set. Every day say an intention/affirmation, “I live in financial integrity. I am on the way to living debt free. I will feel freer, lighter and happier.” Put it on a card in your wallet so you will see it before you spend. Visit frugal messageboards for inspiration and see how many people make a game out of living frugally. Every evening write down your triumphs in your journal. “Today, I put the magazine back down.” “Instead of going out for lunch, my friend and I decided to take a walk.” Remember you are rich. Quit comparing yourself to others. See yourself as someone who is frugal and responsible with money.
9. If you continuously overspend, examine your feelings. Where are you really feeling lack in your life? Where are your needs not being met? If you make a plan to take care of yourself and your needs you won’t have to do your recreational shopping. Maybe you need to find some new friendships, get a hobby, start exercising. Maybe you need to work through something you have been ignoring by shopping. You might want to make an appointment with your pastor or a counselor.
10. Remind yourself that you will not feel better when you find the “perfect thing.” While you are on the hunt you may feel that adrenaline rush. But, once it is in the bag and you are holding the receipt it’s not fun anymore.
Know that you are not alone. Many people are right where you are. But, it we work together and hold each other accountable we can rise above the debt.