Eight Steps to Get Out of Debt and Fix Your Broken Credit

Here's a piece courtesy of Marotta Asset Management that offers eight steps to get out of debt and fix your broken credit:

Debt problems destroy your credit history and isolate you from a host of economic privileges and opportunities. If your credit report was a wake up call to get out of debt, you may be wondering what to do next. The first step to stop the hemorrhaging is simply to not borrow another penny until you are completely out of debt. The rest of this article will only benefit those in debt willing to make this commitment.

Avoid dealing with "credit repair firms". Don’t waste your time opening new accounts. Moving won't help either. Your credit history will gradually repair itself.

The first and most important step to getting out of debt and reestablishing good credit is to admit your past mistakes. No one has ever been able to overcome their problems until after they have first admitted them. Yes, this is the hardest part, but also the beginning of the way out.

Now, to get out of debt, here are the steps. Walk carefully.

TOTAL YOUR DEBTS AND REDUCE YOUR RATES

1. List your debts. List WHO you owe money, the AMOUNT you owe, and the INTEREST RATE you are paying. Most people who are in debt avoid looking at these statements. The truth is often difficult to face, but facing this information honestly is important.

2. Call every place you owe money. This is especially important if you are delinquent in your payments. Let your lenders know you will be trying to pay off your debt and ask for their assistance. Ask them for a lower rate of interest. Negotiate. Ask them for a payment schedule you can actually pay. Lenders are not gentle with over-spenders who have to be wrestled to the mat for payment. But they are surprisingly kind to those who call promising to pay and asking for help.

3. If possible, consolidate all your debt into the lowest possible interest rate. You can get information on low-rate, no-fee credit cards at www.cardtrak.com. Consider consolidating with a credit card that offers several months with little or no interest. These can give you some grace period to reduce your debt.

4. If you can't consolidate everything to one low interest rate, pay as much as you can on the debt with the highest interest rate while paying the minimum on everything else.

5. Put your high interest rate cards someplace safe. Ask your mother-in-law to hold them. Do whatever it takes. These are not to be used while you are getting out of debt. It doesn’t matter what wonderful perks are offered for using these cards. They are never worth the cost, trouble and heartache they caused your family.

PAYDOWN YOUR DEBTS

6. Try to reduce your fixed expenses and use the difference saved each month to pay off your debt. Eliminate features on your phone or drop channels from your cable plan. Read this column for regular tips on budgeting for ways to live proportionately within whatever amount you earn.

7. Make one-shot reductions in your debt. Hold a yard sale and use all the proceeds to pay down your debt. Pay cash for everything and use all your change to pay down your debt. Take an evening job or use all of a spouse's income for the next few months to pay down your debt.

8. Take drastic measures until debt-free. No eating out. No movie rentals. No discretionary spending. Realize that some people live on half of what you make. They use 65% of that for their regular expenses, save 15%, put 10% away for large purchases, and give 10% away to charities. If they can do that, you can live without cable television and gym membership until you are out of debt.

Is financial freedom worth it? The choice is yours.

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For more on credit and debt, see Best of Free Money Finance: Credit Card Posts and Best of Free Money Finance: Debt Posts.

Comments

[F-H-K]

From what I have read, I think you are a fellow Christian. I lost my job few months ago and got into a car crash. Now I have debts to pay and I simply cannot find a job. I cannot afford bankrupcy because I am way too young for that. Worse, as a licensed realtor now, I have no car to drive and debts to pay.

God has always looked after me. I am truly blessed to have Him in my life and I have always tried not to ask Him for many material things. But I have only realized that one truly needs money to survive the earthly realm. I now have no goal because my passion in real estate has been drained. I have no idea where I can find jobs in chemistry where I obtained a 4-yr degree in. I have nowhere to turn because I am not eligible for unemployment insurance.

What do I do?....If any of you has an answer, please email me. It is warrenisking@hotmail.com for the purpose of staying anonymous.

[FMF]

I'd suggest you turn to your church. Ask them for help -- to help you develop a budget, to get back on your feet financially, and for some career counseling from some of the experienced business people in the church.

[sravi]

i think the first step for you is to not lose hope.
if you beleive you can, you can.

second, look to your society for advice and a helping hand to get started. its ok to ask for help.

third, and this is a paradox: when you are in need of help, find someone who could use your help and offer it to him/her wholeheartedly. this wil help u gain confidence and also have a person to discuss issues.

fourth, get a financial balance sheet going. gain an understanding of your spending and what you are spending on. you can get started with www.bills.com ebook.

fifth, look to see how u can combine your passion for real estate, degree in chemistry to make money. when the clouds darken, they spell rain. rains can bring mucky sand but they also bring fresh air. its all in persepective

good luck and god bless