Getting out of debt is easy. Pay off all your debt. Simple right? Simple concept-tough execution. Don’t be discouraged. Here’s a step by step guide to getting it done. Your situation will be different but you can tailor it to your specific needs.
Step 1: Contact your creditors to negotiate better terms.
Whether you are behind in your bills or not, you need to contact your creditors. Now, not all debt types are open to negotiation such as car, boat, RV, and other secured loans. But, credit card and medical debt are almost always prime for getting better terms including better interest rates on credit cards and longer payoff terms for medical debts.
Call your credit card companies and tell them you would like a better rate. Also tell them to waive any yearly fees. Tell them you will switch to another company if they don’t. This works sometimes, other times you may have to follow through. With all the 0% interest deals out there it will not be tough. **Note: If you are delinquent are have slow pays, you probably will not be able to get better rates, however, you may still be able to get more favorable terms elsewhere.
Medical debts are easier to negotiate. Most doctors will allow a repayment plan, interest free, and at a low monthly payment. Be sure to ask for a repayment plan even if you have the money to pay it off. Most doctor bills are interest free. Use the extra money to pay off the credit cards.
A spending plan is extremely important. So important in fact that I am willing to bet that if you do not have a spending plan, you will not get out of debt. So how do you do it? List all of your household necessities (food, utilities, clothing, etc). What you need to survive. Next, list all of your unsecured (credit card) debts and their minimum payments in order from least owed to most owed. Nest, list all of your other debts’ minimum payments. Then bring-home pay minus total monthly bills=(money used to pay off debts). If you do not have any left over then go back and cut more from your necessities. Still none left over? Get a second job, sell something, declare bankruptcy. Yes this is an option although not recommended.
If you do have extra money after necessities and minimum payments. Pay off the credit card or other non-secured loan first. When that is done, pay off the next, and next, and next until all non- secured debt is paid off.
Step 3: Pay off car loans, boat loans, RV loans, etc.
Pay extra on your secured debts, excluding a mortgage, until they are paid off. Start with the one you would be most willing to sell. Now I am not saying you have to sell your stuff but once you start getting out of debt, “things” aren’t as important as peace of mind. For instance, that motorcycle you never have time to ride, isn’t fun when you are struggling to make the payments. Sell it and buy another when you can pay cash for it. That’s how the rich do it.
Now that all of your credit card debts and car payments, RV payments, etc. are paid off, you can go into super-payoff mode.
If you don’t have medical bills, first, thank God, and then go on to step 5. If you do have medical bills, start to pay them off. Pay your primary care physicians first. That vasectomy can go to the bottom of the pile, chances are you will not have to use that doctor’s services again. Pay those bills you owe to your dentist, chiropractor, physical therapist, etc. first. Once you’re done with the medical bills you can move on to step five.
If you don’t have a mortgage, congratulations, you are now done and debt free! Go celebrate. For the rest of us. Now is when life is going to change. Paying off your mortgage is a huge step. Take all the money that you are saving each month by not having credit card debt and pay down your mortgage. You may even be able to refinance for a shorter term. Pay a little extra on your premium each month and you can know years off the length of your loan. Though not easy, getting out of debt is doable. Make a plan and stick with it and before long you’ll be debt free.