Ways to Get Out of Debt Permanently
Over the past few years the economy has been quite volatile, and after losing jobs and losing homes many people are so low on cash that they find it difficult to simply find enough money to feed their families. To compensate, many people begin supplementing their income, or lack of it, with their credit cards. Unfortunately, they quickly see that when their monthly statement arrives they still don’t have the money to pay off the balance and they only make the minimum payments. After a few months of this, they find themselves going deeper and deeper into debt, until one day they can’t even find the money to make the minimum payments anymore. If you are in this situation, here are ways to get out of debt permanently.
Create a Strict Monthly Budget. Start by writing down all of your debts and monthly expenses. Be sure to include all of the bills that you pay each month including rent, insurance, car payments, utilities, groceries, and so on. This list should also include all of your credit card debt and the minimum monthly payments.
Total Income versus Total Expenses. Writing down all of your expenses gives you a clear picture of your financial situation. On your monthly budget add up all of your expenses including your minimum payments on your credit cards. Compare that number with the total amount of income you have coming in every month. If you are reading this article chances are you have more expenses then income.
Look for Ways to Reduce Your Expenses. Review the expenses that you listed on your budget and look for any possible way to reduce or eliminate those expenses. The first item that many people tackle is their cable TV and phone bill. Can you watch TV online? Do you really need a landline phone and a cell phone? The second is the amount that they spend dining out, going to movies, and any other entertainment that costs money. And the third way to reduce your expenses is by analyzing the amount you spend on groceries and finding ways to significantly reduce that expense.
Review your list and determine which debt is the smallest. Once you reduce your expenses and free up some cash each month you want to apply that cash to your debt. Begin by paying off the smallest loan or credit card first. Once you have made all of your minimum payments, take any remaining money and put it towards this debt. After this one is paid in full, move on to the next smallest debt and repeat. By doing this you are not only paying down your overall debt, but you are also increasing your credit score.
The more organized you are and the more you stick to your new budget, the quicker you will pay off your debt. In the meantime, understand that you shouldn’t use your credit cards for any new purchases. Only spend cash that you have and can allocate to any specific purchase.