Get out of debt FAST with these 6 simple steps
Crushing debt compounds your problems, stops you from building wealth, wrecks your credit score, and decimates your chance at a financially secure future. Facing down your creditors seems intimidating right now, but you have to start somewhere. Use this effective, no-nonsense six-step formula to get out of debt FAST.
Create a budget by writing down your income, your monthly fixed expenses (like a mortgage), and your monthly variable expenses. Subtract your expenses from your income. This is your discretionary allowance. Earmark a sizable portion of it to pay down debt. If your expenses amount to more than your income, start spending less or earning more income.
Draft a debt payment plan by making a list with two columns. On the left, list all the types of debt you hold. On the right, put down their respective monthly payments. Add the payments in the right column to come up with a total. Allocate as much as possible from your discretionary spending allowance to pay this down. Use this system to track your progress.
Ask your creditor to lower the interest rate on your debt. Most creditors will consider this if you have a good credit score. If you don’t, use a balance transfer card to transfer credit card debt to low-interest debt. You’ll have to pay a fee, but it will help you pay off credit card debt faster. As a last resort, take a debt consolidation loan which will merge all your debt into one monthly payment while securing a lower interest rate.
Keep your debt-to-income ratio under 30 percent. If it is currently higher than 30 percent, think of ways to increase your income. You could also drive down that percentage by not taking on new debt.
Pay old debts or bad debts that have depreciated in full. This will boost your credit score. Don’t let the account go delinquent or default on a payment.
Excessive credit card spending drives you further into debt so do what it takes to stop using your credit card. Some people lock them away in a drawer or even freeze them in a block of ice. Use cash or debit cards to make payments.