Now more than ever, millions of Americans are facing some difficult times ahead with paying off their consumer and credit card debt. Home foreclosures are on the rise and consumer debt is at an all time high. Although gloomy, the future could be thought of like this: has there ever been any mountain to high to climb? Mt. Everest was considered not climbable at one point in history. Now it is done all the time. With regards to eating an elephant (paying off you debt) it is done one bite at a time.
The first thing you need to do is to take account of what is so. This means you want to do a budget and look at how much money you are bringing in versus spending. I know this is not fun, but it is necessary. It is easy to see how your money is coming in: a job, pension, social security, inheritance, or some other form of income. Where this exercise gets more difficult and more interesting is in looking at what is going out.
Truth be told if you are in debt, exceptions considered of course, what got you into the “mess” you are in is your spending habits. I can hear you groan right now, and some of you might even stop reading at this point because I just blamed you for your own problems. If not you, who do we blame? An ex spouse? Kids? Guess what? You are the common denominator in all of the cases you can come up with. At some point in the past, if you look back, you will see some choices you have made about spending your money, or not saving some money (like I start saving tomorrow) that has you in the position you are in today. I’m only speaking from experience as I have had to dig myself out of my debt. Most of it I got while I was younger and in my 20’s.
There is nothing wrong here. There is nothing wrong with you at all. Actually, I think it is a common human thing to do, at least in the United States. How many times have you said to yourself, “I can worry about it tomorrow”? I know that I have said this a lot in my life. Well, this is the good news. Except for the few exceptions where something catastrophic has happened to someone (and bad things do happen) most of what it takes to get out of your debt is a matter of what you say to yourself. It is pretty simple, instead of saying “I can worry about it tomorrow” you can say, “I will worry about it today and get into action about getting out of debt.”
But, if you are reading this and you have debt then you might be further along that you think. You are already taking action. Just keep going with your action. So, up to this point, I have suggested looking at your money coming and your money going out. Looking at your money going out is the hard part of this exercise. It will take some discipline and something to keep track of what you are spending your money on. Track yourself for at least a week, if you can do it, do it for at least 2 weeks, if not the whole month. You will see some wild things about where you spend your money. You also might catch yourself from spending money on things that you might have in the past. My recommendation is to take at least a week and not change anything, just track your expenses and see what you see.
Once you have tracked yourself for a little while, you will start to see some habits that you might want to think about changing either permanently or at least temporarily while you dig yourself out of debt. If you are looking to get out of debt in preparation for buying a home, I recommend you give up the Starbucks and the Escalade. By looking at your spending habits you should notice some things right away about where you can save some money. For other not so obvious ways to spend less money keep reading.
Well, one more thing about your coffee no matter where you get it. You can make great tasting coffee at home and save yourself a ton of money. Most of us would rather pay for the convenience of having someone else make it for us. Well okay, but that kind of thinking needs to change if you are looking to get out of debt. Sorry! One time, I did a budge for one couple I was working to get a mortgage and discovered that they were spending close to $400 just for coffee (2X a day for each of them and an occasional one for the kids). It was shocking to them that they were spending more on coffee than gasoline. They stopped their buying their coffee out and stared making it at home.
Some other things around the house where you could look: TV and Internet access. I know that I might get some resistance here but you do not need cable TV. That is right. You can put the $69 a month towards paying your debt off. You can get movies for free at the library. My wife and I have found the selection at our public library to be quite good. Now the Internet, take a look at what service provider you are using. I see tons of people using AOL at $21 a month. The truth is that you can get the same internet service through Net Zero for $9.99 month. Better yet, see if you can tap into your neighbor’s wireless network if it is a non secure network. You might even talk to them about an arrangement where you pay them half their Internet bill for using their network. Sounds brash and radical, but so is getting out of debt in today’s world.
What are you paying for your insurance? Are you paying too much? It makes sense to compare different insurance companies. Insurance premiums can vary hundreds of dollars from company to company. It pays to shop around. Another thing you can do is replace your light bulbs in your home with fluorescent bulbs. Not only do they last a lot longer and are better for the environment, they will save you money. I knocked 25% off my electric bill in my condo by switching to “green” light bulbs.
Okay, that is enough for things around the house. As you can see, there are plenty of place where you can cut your expenses if you declare “today as the day” to begin your journey out of debt. If your credit is not in the best shape and you have collection accounts, you do not have to pay all of the balance back. If your accounts have been turned over to a collection agency you can negotiate for pennies on the dollar of what you owe. If you do not want to do this yourself, you can hire a debt negotiator. Most settlements come in between 40-60 percent of what you owe. Once the debts are paid off, your score will go up as well. Having your scores go up will do two things: put you in a position to borrow money at better interest rates and terms (for a home, a car, or with a good credit credit card). Second, you will have most likely think better of yourself and have more confidence in life knowing that your credit is cleaned up and that your scores have gone up. All of this from knowing that you did the work to have it happen.
The bottom line about getting out of debt is to live by your needs and not your wants. Do you really need that expensive vacation, jewelry or car? You will have to pay it back with your time. If you are like me I would rather enjoy my life than worrying about how I am going to get out debt.
Written by Debt Free Dave. Debt Free Dave has been in the mortgage and consumer finance business for over 10 years. He has a Finance and Real Estate degree from the University of Arizona.
This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.
