A lot of people declare bankruptcy, although the credit reports show the person is paying their bills on time. This is often referred to as a surprise consumer insolvency. Just because a person can make the minimum payment doesn’t mean they are able to pay down credit card debt. Getting into debt is easy and sometimes bankruptcy seems like the only solution.
Not everyone swimming in debt is young kinds. A lot of people who find themselves in debt know how to use credit properly. However, the economic rough times have resulted in drastic measures. Those who have lost their jobs have turned to credit in order to make ends meet. Then help isn’t asked for until the very last second.
Even in the worst scenarios, bankruptcy isn’t the only option. There are 10 steps to follow to get yourself out of debt on your own.
- Admit to having a problem. You have to face reality and realize that you are in debt. If you think things are going to fix themselves, think about it. The sooner you realize the severity of the debt, the sooner you can start taking action to correct the problem.
- Make an inventory. Create a list of every credit card debt you have. Add it up to see exactly how much you have in debt as it will be an eye-opener.
- Calculate what you have to work with. Create a budget and figure out how much you have to start applying to the debt. You may have a lot more money than you think. When you can cut out certain expenses and cut down others, you can reduce your debt a lot faster. Think about how you can save money by not going out for coffee, cutting coupons, stop smoking, and much more.
- Place the largest amount of money to the largest amount of debt. Look at which credit card has the highest interest rate. You need to pay off this debt first. Pay at least double the minimum payment on that one and then pay minimums on the rest. When that one is paid off, continue with the next highest.
- Start to save money. As you start to pay off all of your debt, put some of the money away. If you suddenly find that you have less money going to credit cards, that’s not an invitation to spend more. Get it into high-interest savings account for some financial cushion.
- Determine what should be kept. As you pay off your credit card debt, decide if you want to keep the line of credit open or not. You don’t need a lot of open credit. Keep one or two cards – preferably ones with a low APR and no annual fee.
- No cash, no purchase. As you start to pay off your credit card debt, remember that you want to get out of the habit of putting purchases on credit. If you don’t have the cash or you can’t pay it off in two payments or less, don’t buy it.
- Check your credit reports. Make sure the information with all the credit reporting agencies is accurate. If you’ve paid off a card, make sure it’s reflecting. Otherwise, you could be working to improve your credit score and it’s not showing up on the reports.
- Invest your money. Create some sort of investment fund as you start to put money away. Whether it’s a mutual fund or something else, you need to invest. Seek a financial expert if you’re not sure which route to take.
- Use the 10% rule. This means that 10% of your income should be set into a completely different account. With the economy being as it is, it’s a good idea to stock up and have 3 months of income in a separate account. The 10% will help to cover bills, groceries, and much more in the event you lose your job or something else happens.
It may not have taken long to get into debt, but it’s going to take a while to get out. Patience and perseverance are the keys to getting out of debt. Before you consider bankruptcy as the solution to your problems, take a look at your budget and see what you can do on your own. Bankruptcy may get rid of the debt, but it’s going to hurt your credit for about 7 years. Instead, work to do it on your own and it will yield better results.