13 Sep 2010

Tips To Get Out Of Debt (Part 1)

Debt No Comments

John Vaughan (Financial Advisor) @ Lucid Living

For some, job loss, health issues, and major unexpected house/car/family emergencies have loaded them up with debt.  For most, however, debt is the result of unconscious spending, poor money management, or both.

The financial and psychological burden of being in debt causes us and our families continuous emotional stress. That stress eats away at the quality of our lives and leaves us feeling powerless, angry, depressed and helpless.

But there is a way out – in fact, there are 10 simple and straightforward ways out of debt – and if you apply this 10 point plan to your life today you will have taken the first step on your personal road to debt free living for life.

1. Acquire No New Debt

You have to make the COMMITMENT to yourself and your family that together you will take on NO new forms of DEBT today. Agree from this point forward that you will not take out a loan for a new car, you will not re-finance your home and cash in your equity to afford home improvements, you will refrain from filling in new credit or store card application forms and you will destroy all those credit and store cards you already have.

Break the pattern of living beyond your means TODAY.

2. Begin To Track Your Money

To get yourself on the road to repayment, it is crucial to know how much debt you’re carrying and at what interest rates. Your credit report is a useful tool for this exercise – GET LUCID’s easy to understand Credit Pulse Report which spells it out for you. Starting right now go and get the paper work for all of your regular bills, any loans, debts, credit card statements etc. and also the details of any income you receive each month from your job, any benefits you get or savings income – and put all of the paperwork on the table in front of you.

Step by step go through each one. List on a piece of paper what income you have coming in each month and then list what expenses you have going out each month.

With the expenses it is best to do it in two separate columns…column one should be your essential expenses for every day living including your rent, electric, water etc., and column two should be the amount of debt you have. Write down all of the money owed on each credit card, any loan amounts you have outstanding and also detail the minimum and required monthly amounts for each one.

If number crunching is your phobia – GET a LUCID financial advisor to do it for you!

Now you know exactly how much you have to live on, how much you have to pay out each month to live and exactly how much you have to find each month to pay debts.

Every month go through the same process – once you have this whole 10 point plan in place you will notice that the amounts you owe will reduce each month and you will find it easier to afford your month to month essential living expenses.

If you don’t keep a track of what you spend it has been proven that you will spend up to 10% more than you can actually afford each month so your debt will grow and grow exponentially forever unless you break the pattern TODAY.

3. Negotiate Better Interest Rates & Better Payment Terms

Step 2 should’ve highlighted the amount you have in debt and the amount you have to pay out each month for each debt. Taking each debt at a time – look at the amount of interest you are paying on every single debt you have and also read contract small print to find out about any penalties you may incur if you pay back loans early.

If reading legalese is not your cup of tea – GET one of LUCID’s attorneys to do it for you!

Find out whether you can re-finance your home loan (for the same amount NOT to release equity) and take advantage of a lower interest rate and also the ability to pay off lump sums of your home loan each year.

Pay more than the minimum required instalment, you’ll be surprised by how much you save in credit costs.

Aggressively re-negotiate your interest rate, on all credit lines. The help of an expert negotiator in this department is more likely to get them to see things your way – GET a LUCID credit manager to do the talking for you!

Look at transferring credit cards to those offering lower interest rates and even 0% interest on balance transfers for a fixed period.

  • DO NOT increase your credit limit!
  • DO NOT use this as an excuse to add another credit card to your list!

If you do find a company willing to take on your balance transfers, cancel all other credit cards immediately after you have paid them back.

Now find out whether there are any finance companies offering lower interest rates than the companies you are already with and consider consolidating these other loans under one with a lower interest rate.

  • Again, DO NOT use this as an excuse to take out yet another loan!

4. Create Your Debt Payment System

Now you will have a complete picture of what has to be paid and to whom each month and exactly how much money you have to pay them.

List each debt with the highest interest incurring one at the top all the way down to the lowest interest incurring one at the bottom. List the minimum amount you have to pay each month for each debt and ensure you PAY it ON TIME EVERYTIME….without fail.

Any spare money you have left at the end of the month use it to pay off an extra slice of debt number one. When that is paid off move on to debt number two and so on and so forth until, in time you will have paid off every single debt you ever had!!!

5. Keep Your Eyes On The Prize

Constantly remind yourself WHY you want to get out of debt – you want to live a fulfilling and comfortable life – FREE from the anxiety and stress of losing your home and reputation, because of bad money management. Be disciplined EVERYDAY and Stick to your Debt Payment System.

Track your progress, with your CREDIT SCORE – that’s what your creditors do. Implementing this 10 step plan will result in your credit score and reputation improving over time. Subscribe to LUCID’s Credit Pulse TODAY!

See Part 2 for more helpful tips.

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