What is the best approach to tackling debt?

Question

I need some advice. I always plan on paying all my bills on time but it seems like I can never get out of debt. I basically had to financially support myself since I was 14. I put myself through school. I have never been able not to worry about money. I am about $25,000 in debt right now. I make about $32,100 a year. I am feeling overwhelmed and need some suggestions.

Answer 1

The first thing you need to do is list out the things that you MUST pay/month in order to survive (i.e. food, mortgage, utilities, car, etc.).
Then, you need to calculate how much of your income is left at the end of the month. Once you see how much is left, put 70% of that into making extra payments toward your debt. Put 10% into savings, and leave 10% for breathing room/month.
I found it helpful to put your budget into an excell spread sheet, and at the beginning of every month, track your spending. The most difficult part about getting out of debt, is cutting back on the things that you do not need!
Yes, read the book The Richest Man In Babalon. It's a excellant read; however, no book will make you change. You have to apply what you read, and then you'll see a difference in your financial standing.
Good luck to you!

Answer 2

I worked in the financial service industry and saw many people with debt problems.

1. Define a monthly budget for yourself
2. Get a copy of your credit report
3. Investigate if you can consolidate your debt into lower payments and less interest
4. Possibly meet with a debt consultant in your area, many are free and will help you develop a debt management plan
5. Stick to your budget- otherwise you'll create more debts
6. Try to develop a long-term financial plan (some are available online)
7. Determine how long it will take you to pay off all these debts if you do what you are doing now-
8. If you can't pay these debts off without severe increases in interest rates- definitely see or hire a debt consultant to help you pay these off sooner- some debt consultants can "lock" your current debts so further interest will not add up....

Answer 3

You got through school, and supported yourself from a young age - you're obviously a capable, effective person.

If some of the debt is from school, just continue paying on it on schedule unless you can come up with extra money to pay it off early.

If some is credit card debt, try to get that paid off as soon as you can, since the interest rates are very high. Try not to use the credit cards unless it's for something you really NEED.

Good luck. You've made it this far, you'll dig out of the financial hole you're in.

Answer 4

First, very well done for putting yourself through school and supporting yourself since 14.

I would suggest you read the book The Richest Man in Babylon.

The stories are short. It is an easy read and has the best financial planning strategy for paying off debt and recovering after mistakes and then becoming wealthy that I've ever seen.

Answer 5

Don't panic!!

It sounds like you are taking ownership for this matter and this a great sign.

Here are some helpful tools:

www.simpleplanning.net ("BUDGETING")


You want to establish a monthly BUDGET for your income and expenses FIRST.

You want to SAVE 6-months of your income for EMERGENCY purposes.

If you own your own home you can get a Home Equity Loan or Line of Credit and payoff your debts?

PAY more than the MINIMUM due each month for each credit card you own.

Re-Negotiate the APR% you are currently paying on un-secured dedts such as credit cards by calling the Creditor or Bank and asking for a lower rate today!

You can consolidate debt with a BALANCE TRANSFER offer from one of your exisitng accounts to lower your interest rate and reduce the number of payments that you make each month today!

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You can get on top of your debt situation if goig forward you don't get into MORE debt. Paying Cash $ and starting a BUDGET while focusing on PAYING OFF your existing debt.

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I know it seems EZ to use that plastic card, but it adds up just as easily. And you have to PAY it all Back plus INTEREST!


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You should also obtain a FREE Credit Report on an annual basis and review it for accuracy and to ensure you are getting CREDIT for your good repayment history:

Visit these sites:

www.freecreditreport.com

www.annualcreditreport.com

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Have a great week ahead!

GOOD LUCK! :-)

Answer 6

You should have no more than 15% of your income as part of your total debt. Try to negotiate a lower interest rate with the creditors. Cut all spending and set up a budget for only necessities (food, clothing, shelter) Brown bag lunches, no going out for dinner or drinks after work. The sacrifice will pay off over time.

Answer 7

Talk to your bank to find your local not-for-profit credit counseling office. Usually you get a free consultation and that might help you getting started. I was looking for a Certified Financial Planner or other financial advisor - but I learned that this is not really an option as those are mainly interested in clients that have large assets.
I did go to a non-profit agency and actually learned two important things: first, I need and I can indeed take charge of my situation, and second, I need realistic financial goals.
Simply the fact that I had to organize all my finances for the consultation helped me quite a bit. Very important is also to not lose sight - i.e. where you try to get (in your case, to get rid of your debt). For the longest time, I ignored as much as possible my situation - but guess what, there is no running away and it eventually will catch up with you. This is important to realize - it sounds somewhat stupid to spell it out but it is so true.
The ways to tackle your situation can go two ways only: either increasing your income or reducing your expenses - e.g. could you look for a better-paying job? Would getting more education significantly raise your chances for a higher-paying position? Could you move somewhere else (to an area that has a lower cost of living)? On the other end, you could see where you can cut down on your expenses - to find out how you first need to know where your money currently goes - there is no other way than to really track your spending for some time. Start out simple - write down all your recurring payments (rent, utilities, loans etc.) and then on-going your variable spending - eating out, clothes, food, etc. Do not underestimate the effectivness of this - I was shocked at how much I spend on restaurants!! I use a free software to track all my money stuff now (including 401(k)) - I can only recommend it: it helps me to spend minimum time on thinking about money (https://moneycenter.yodlee.com/moneycenter/login.moneycenter.do?_flowId=login&c=csit_key%3AUwnT%2BTqKZ%2FtWIHMdjDZDtPdtkio%3D&l=_flowId:u)
Check out all the great resources online - you will find a wealth of information that will get you thinking in the right direction as well as show you how others got out of debt, and you will get a sense of empowerment once you really start proactively tackling your situation!
Some great sites are:
http://www.bankrate.com/
http://www.fool.com/
http://finance.yahoo.com/personal-finance
http://www.kiplinger.com/
http://money.cnn.com/pf/index.html
http://moneycentral.msn.com/home.asp
http://www.smartmoney.com/pf/index.cfm?nav=dropTab

Answer 8

You need to take extreme measures to get this debt down. A part time job; sell your car; no entertainment; go through your budget and cut back, and use the savings on paying bills only. You need to get that debt knocked down to at least half what it is now to be in a good financial condition.