Each year, one of the top New Year resolutions is to battle debt and get out of the hole many Americans dig themselves into. Today’s society encourages borrowing and spending, which can lead to a grim financial state. In fact, this holiday season showed an 11 billion dollar increase in credit card debt. And worse, studies have shown a debt-stress connection, which means that debt not only affects your ability to support yourself, but also creates negative feelings, anxiety and stress.
It can be hard to separate yourself from the masses and make the decision to live in a different ways, but living debt free can vastly improve your quality of life. So why not make 2017 your year to make it happen—to be free of the debt and stress? If you’re ready to tackle bad credit, here’s how to start!
Look at Your Overall Financial Picture
To get out of debt, you have to know the debt you’re in. That means you're going to need to take an in-depth look at your finances and the debt you have. Gather bills, bank statements and pull your free credit reports. Get everything together in front of you and start listing assets, spending habits and all of your debts and interest rates. Flag anything on your credit reports that isn’t true—you’ll want to take steps to get rid of them if possible. Once you have a good picture of where you are in terms of debt, it’s time to roll up your sleeves and get to work.
Begin with Errors
A good place to start your credit repair journey is to get rid of any errors on your reports. The same goes for discrepancies in bills. If you see something that doesn’t make sense or you know isn’t right, question it, and work to have it fixed. To dispute something take the following steps:
- Gather and copy any documentation that supports your claim
- Write a letter to the credit agencies
- Write a letter to the information provider
- Send the letters and follow up with anything asked of you
Once you've corrected errors it’s time to create a budget. The only way to pay down debt is to have the money to do so, and that means setting some aside each paycheck to go toward your debt.
Creating and Sticking with a Budget
The most important part of a budget is visiting it often, so before you create one, plan on checking in with it frequently. If you’re really trying to stick with it, check in daily or weekly until your newfound financial habits become second nature.
A budget, simply put, is looking at your income and making sure your expenses aren't higher. However, it becomes more complex as you bring in all the things you most likely need or want to pay for. Do some research to find sample budgets. Look for one that best fits your needs. Add some priority categories, like rent/mortgage, transportation, insurance, savings and debt. Start to look at where you can reduce your bills, or whether you have something you waste a lot of money on. Once you have a good budget to follow, find an app, accounting book, spreadsheet or computer program to help you maintain your budget. You’ll need to adjust things from time to time, and don’t forget to set some personal goals periodically.
Freeing Up or Earning Extra Money
Another part of the getting debt-free process is finding or making some extra cash. Many people don’t ever look at how they can have just a little bit more. Some easy ideas include:
- Ask for a raise
- Sell unneeded or unnecessary items in your home (Hint: it’s a win-win because you can declutter too)
- Cut expenses (for example, invest in an espresso maker so you can cut the $30 in lattes you indulge in each week)
- Reach out to your cable, phone, cell phone and internet companies to look for a better deal or to reduce what you pay (Hint: Consider ditching cable and getting a monthly service like Netflix or Hulu instead)
- Make decisions to live more frugally (rent movies instead of going to them, dine in rather than out, etc.)
All your extra money can go toward boosting your savings and paying off debt. Once you gain momentum you can add things back in if you want to, but not so you go into debt again.
Paying your Debt
The last step in the process of credit repair is paying your debt. Start with past due accounts. Make sure to pay monthly minimum payments on everything. Finally, research different methods for paying debt off, like the snowball or avalanche method. Keep paying until it’s done. You’ll find the more you accomplish the easier it gets and the better you feel.
