List fixed expenses. These are things that cost the same each month: rent/mortgage, health insurance, car payment, food, etc. [2] X Research source Now identify variable expenses. Variable expenses will differ each month. Variable expenses are also typically luxuries, such as meals out, gym memberships, and Netflix. Try to reduce your variable expenses as much as possible, and contribute the money saved to your debts. [3] X Expert Source Brian Stormont, CFP®Certified Financial Planner Expert Interview. 21 July 2020.
The money from a part-time job can add up quickly. For example, you might get a job for $10 an hour. If you work 20 hours a week, you can earn an extra $200 before taxes. Over the course of a full year, you will have earned about $10,000.
Apply all proceeds to your debt balances.
When you call, identify yourself and how long you have been a customer. Ask if you can get a lower APR so that you can continue to work with them. For example, say, “Hi. My name is Michael Jones, and I’ve been with you for seven years. I’ve been a good customer and would really like a lower interest rate. It seems high for me. Can you offer me a lower rate so I can continue to do business with you?”
Pay off the card with the highest APR. This card is costing you the most in interest, so paying it off first will save you money. You pay the minimum on all other cards and then contribute all remaining cash to the card with the highest APR. Once you pay that off, you focus on the card with the next-highest APR. Pay off the card with the smallest balance. This will cost you more. However, it might give you momentum. As you pay off one card, your confidence and commitment increases.
Of course, you shouldn’t start running up debt again. If you think you will be tempted to spend, then close the account. Your credit score will get dinged, but the damage will be less than if you rack up bills again.
Stop into a local credit union or university and ask. Often, they operate non-profit credit counseling services. [6] X Trustworthy Source Federal Trade Commission Website with up-to-date information for consumers from the Federal Trade Commisson Go to source Your housing authority, military base, or branch of the U. S. Cooperative Extension Service might also offer services as well. Look for credit counselors at the U. S. Trustee’s website: https://www. justice. gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111. These counselors have been approved to counsel people considering bankruptcy.
Discuss what to do if most of your debt is “secured. ” Secured debts tied to some asset. For example, a car loan is secured by the car itself. If you default, your lender can seize the asset. Debt management plans work only with unsecured debts, like credit cards, personal loans, and medical debt. However, your credit counselor might have ideas about how to manage your secured debts.
Perform proper research before enrolling in a debt management plan. Check with a local consumer protection agency to check whether anyone has filed complaints against the company. [9] X Trustworthy Source Federal Trade Commission Website with up-to-date information for consumers from the Federal Trade Commisson Go to source
Generally, you will write one check to your credit counselor who turns around and pays your creditors. Using a debt management plan shouldn’t negatively affect your credit score. However, it will show up on your credit report. [11] X Research source
Even if you are able to get a loan while in a debt management program, your creditors might withdraw any concessions they have made (such as waiving late fees or reducing your APR). Get a list of your obligations in writing and stick to them.
One of your current credit cards might offer balance transfers. Look there first. Make sure the card doesn’t already have a balance. If you don’t have a current card, you should shop for one. Generally, you’ll need a score of around 700 to get a balance transfer credit card. Generally, the low-interest rate will go up substantially after the 12-18 month period. Make a note in your calendar 2 weeks before that date so you can close your credit card and open a new one. [14] X Expert Source Benjamin PackardFinancial Advisor Expert Interview. 11 March 2020.
When you apply, the lender will pull your credit history. This “hard pull” will reduce your credit score slightly for about a year. Avoid taking out a home equity loan or line of credit, since you’ll be at risk of losing your home if you can’t make payments. In fact, avoid taking out a “secured” personal loan backed by any sort of collateral. Only seek an unsecured personal loan.
If done right, debt consolidation should free up money that went to interest payments on your loans. Now contribute that money to your principal. Don’t spend this extra money on luxuries, which is a common trap. You’ll only remain in debt if you do.
Also, creditors will assume you are in financial trouble if you apply to a bunch of credit cards at once. This will hurt your credit score. An exception exists if you are getting a card or taking a loan to consolidate your other loans. In this situation, paying off your debt quickly with debt consolidation is worth the momentary credit hit.
However, your credit score will tank because you have stopped making payments. [18] X Expert Source Brian Stormont, CFP®Certified Financial Planner Expert Interview. 21 July 2020. Your creditors might also sue you for failing to make timely payments. If they win the lawsuit, they can garnish your wages or seize your property. On top of everything else, your creditors might not accept your lump sum offer. In that situation, all you have accomplished is harming your credit.
A Chapter 7 will stay on your report for 10 years. A Chapter 13 will stay on your report for seven years after you complete the repayment plan.
