You Can Become Debt Free

Do It Yourself Credit Repair - Get Out of Debt!

Don’t be afraid to clean up your debt yourself, even if you are way over your head with debt. Is it worth paying someone else to do what you can do on your own - that is, things like

• negotiating lower interest rates
• stretching out your payment schedule and
• paying off the highest interest debts first?

Probably not.

Don’t Ignore the Situation

You do need to pay off your debts. After all, your lender gave you money (or material goods) in good faith, so the lender also has every right to expect that they be repaid in full. Morally and ethically you should do everything within your power to pay back your debt.

You can make minimum payments; or better yet, paying the minimum plus a little more toward the principle to wipe out the debt. Explore your available options and see what your best solution is for handling your debt.

Stop Overspending

The first thing and most important thing is to stop spending more money than you have. You can go through all the trouble and work to get out of debt, only to end up right back where you started if you don't learn to live within your means. If you are serious about getting out of debt and staying there, take the first and most important step of lowering your spending.

Credit Card Debt Management

Credit cards can be a good thing if they are used properly. But it is too easy to spend money you don't and won't have if you over use your credit cards. If that is one of your problems, cut them up and throw them away. If you don't have the money to buy something - don't buy it! This is a huge step, but may be necessary if you are to succeed. You won't be sorry.

Make a Budget

Start by making a budget. You’ve just been flying by the seat of your pants if you never created a budget before. Haven’t you ever wondered where all your money goes? If you don’t know how much you are spending and on what, you’ll never be able to determine how to make intelligent money choices with regards to getting out of debt. Now is the time to find out. Sit down and put it to paper. It’s a great eye opener. And determining your financial capabilities is critical to financial success.

Step One – List Your Income

Income from all sources – your job, child support, alimony, tips, rental income, everything that puts money into your bank account.

Step Two – Track Your Expenses

List all necessary expenses you need to pay each month such as your

• mortgage or rent
• food
• car or truck payment
• other debt of loan payments
• fuel for your auto
• utilities (electric, gas, water)
• telephone
• cell phone
• cable
• child care
• tithing
• insurance premiums

Then list the expenses that are optional, such as

• entertainment
• clothing
• dining out
• vacation

If you are not sure of what you spend on these items, you can keep track for two or three months to get a better idea. Don’t forget your cash spending. Cash disappears very quickly and if you don't write down everything you spend, you’re budget will be distorted. Include everything, even if you think an item is insignificant, because it all adds up.

Step Three – Compare Income to Expense

This way you will see exactly how much money you need for your essential expenses and how much income you have to pay it. You will also see how much money you have left over and you can begin to make smart money choices.

Click here to see a sample budget worksheet.

Step Four - Prioritize your spending

Once you see where your money goes, prioritize your spending. Rank by starting with the essentials (food, utilities, mortgage / rent payments, medical costs) to the nice-to-haves (home improvement, vacations, new clothes). Always pay your secured debt first. This means your house and car payments. You should also stay current with your utilities and insurance payments. This is very important so that you will not lose these goods and services.

If your expenses are higher than your income, something needs to be done. Sit down and see where you can cut waste. Do you really need to drink 3 cans of soda pop a day? Can you live without your land line and use only your cell phone? Do your kids REALLY need a cell phone? If so, can they get a job to pay for it? Use what you discovered about yourself from tracking your expenses and cut back on the nice-to-haves.

Step Five – Start Paying Your Debts

With the money left over, you should pay off your debts. That’s not to say you shouldn’t spend any money on those discretionary items, but having a budget will make you aware of how you can prioritize them. See our guidelines for paying off your debts.

Other Steps You Can Take

• Consider if there is a way to boost your take-home pay. For example, if you get a big tax refund every year, that means you have too much withheld from your paycheck. In this case, increase your take-home pay by reducing your withholding. Ask your employer for a W-4 form and increase your deductions.

• Be willing to work overtime.

• Take a second, part-time job for added income.

• Use cash for all your purchases, and only buy what you can afford.

• Avoid impulse spending.

• Create a cash cushion. You never know when an emergency will pop up, like needing to fix a broken air conditioner when the weather is 90+ degrees or you need new tires for your car, or your oven needs repairs. A cash reserve will protect you from going further into credit card debt or needing to take out another loan to cover unexpected expenses.

• Spend wisely and live within your means. Live within your means with a built in reserve for emergency purposes while getting you on track to becoming debt free.

• Lower Discretionary Spending

Stop going out to eat except on really special occasions. You will be amazed at how much that will save you. Buy only the bare essentials (food and gas) and use the rest of your earnings toward paying off your debts. Restraint in discretionary spending for a few months can go a long way toward dealing with debt, depending upon the severity of your situation.

Lower Your Phone Bill

If you have both a land line and a cell phone, consider canceling the land line and going with just the cell phone. But you can even cut back on your cell phone bill by purchasing prepaid cell phones since they are more affordable. You will pay for only the calls you make. No more monthly bill. Shop around for one that has the lowest per minute charge. You will usually have a choice of different amounts you can purchase at a time. Typically the more you buy up front, the lower the cost.

If you decide not to go with a prepaid cell phone, it is still a good idea to shop around for the best deal. Competition in the cell phone business is fierce. Use it to your advantage.

Sell Assets

One option is to sell valuables or liquidate assets and use that money to help repay your debts.

Replace an Expensive Car

If you car payment is more than 15% of your monthly net income, sell it and buy an inexpensive but reliable car that will get you where you need to go.

Refinance Your Auto

Most people never think of this as an option. Your auto is a secured loan and you can borrow against it. Let’s say you are paying 9% interest on a $15,000 loan over 60 months (5 years). The monthly payment is $311.38 and interest will total $ 3,682.52. If you refinance at an interest rate of 7% for the same period of time, the new monthly payment is $297.02 and the total interest drops to $2,821.08. That’s a saving of $861.44 in interest.

The key is to get motivated. Go the extra mile to pay off your debts. You won't regret it!

Make a Budget See a sample budget worksheet.