Many Americans have become accustomed to living in debt. Since it has been so long that they were without any debt, they have forgotten the pleasure of having known what it means to be debt free. For many of them, the debt continues to grow larger. Soon, they will discover that it is over their head and there is no longer any easy way out. Before you get to that point where a bankruptcy is your only option, here are some steps you can take to make sure you never get there.

Find Out How Much Debt You Really Have

When it comes to knowing just how much debt there is, many people only guess. Unfortunately, this leads many people to think that they have much less than what they really have. Take some time and add up all your fixed bills and see exactly what kind of debt you currently have. This includes all re-occurring bills that are the same every month, such as your monthly house or rent payment, credit card payments, car payments, etc. Do not include bills that change every month such as your utility bill.

Now, find out exactly how much income you have each month. Be sure to add all money that comes in regularly, but do not count money that you cannot be sure will be there.

Discover Your Debt to Income Ratio

Your debt-to-income ratio is basically what a potential lender or credit card company will consider when you apply for credit. If it is too high, then you will most likely be turned down for new credit.

Finding out what your debt-to-income ratio is will only require a simple calculation. Simply take the amount of your monthly payments calculated above, and then divide that number by your income. Look at he resultant number as a percentage, such as 25 percent, or 30 percent.

The Number the Creditors Want to See

When you apply for a loan, or some other credit, the lender (or computer) will calculate this number from your credit report. Lenders do have a number that is generally considered a maximum percentage of debt-to-income, and that number is usually 36%. In other words, if the new credit amount you want takes the percentage higher than that, you can almost be sure to be rejected for any new credit from a reputable lender.

Even if your new credit amount may be less than that, it is still possible to be rejected. Another ratio that may be considered is the amount of debt you have compared to the amount of credit available. Ideally, you want your debt-to-income ratio to be around 20 percent. This shows that you are rather conservative in your spending habits

A Higher Ratio May Mean Less than Ideal Credit Terms

It is important to remember that getting more credit when you have a higher debt-to-income ratio may mean that you are not going to get the best interest rates or payment options. Those are reserved for people who have their debt under control.

Having higher interest rates means that you are going to pay more on your debt than you really should. Paying the debt down as quickly as possible will help you to greatly reduce debt and the amount of interest you will pay to the lenders.

How Credit Problems Affect Your Credit Score

There are several items that will hurt your credit score more than other things. It is also true, according to MyFICO, that a higher credit score will be hurt more – percentage wise – than a lower score for any one of these problems. The things that will hurt it the most, of course, are a bankruptcy or a foreclosure. The other things that will hurt it are a delinquency at least 30-days old, settling a debt on a credit card, or taking a credit card to its max limits.

Start a Program of Debt Elimination

If you have had problems with these things in the past, then you want to start working toward debt elimination and credit repair. The good thing is that you can do this yourself, and it will not cost you.

The two best things you can do are first to reduce your debt as much as possible – and as fast as you can. The second thing that will help is to make sure that you pay at least the minimum on time each month.

Paying your bills on time is the single most important thing you can do to raise your credit score. Unfortunately, even though the ads say differently, you cannot go to a debt consolidation service or to a debt counselor and pay money to improve your credit score. Many of these agencies will only recommend or actually help you to declare bankruptcy, which will hurt your credit score more than anything else and it will also remain on your credit report for ten years.

Paying more than the minimum each month will actually help reduce your debt and the amount of interest you owe. It is not a good idea to try and get more credit in order to lower your debt-to-credit ratio. Any lender will be able to look at the credit report and be able to see what you have done.

Make Getting Out of Debt a Real Goal

Deliberately determine to get out of debt and to never let debt get the best of you again. All advertising is aimed to make people unhappy unless they have a certain product. The problem with that is that you have to keep buying to be happy – an attitude the corporations have to love. Being in debt because you continually buy things leads to a rat race of debt. Start now to pay down your debt and build your credit score for better terms on things like a car or house – once the debt is eliminated.

Once you reduce your debt and start getting a greater financial freedom, it may actually free you from the monthly stress of having to work so hard to pay those credit bills for things you probably really did not even need in the first place. It will also enable you to pay less when you start paying cash, too, and are able to stop paying the interest.

It is not very uncommon today to hear about debt and how it has a lot of people scrambling for ways to deal with it. Much of the debt today is from credit card debt. Credit cards made it easy to make purchases without either having to have any money in your wallet, or in your bank account, either.

A whole industry has risen up to help people deal with debt – the debt consolidation industry. Much of the problems associated with debt, however, are because people are listening too closely to the lenders for information about credit and debt. Here is some information about another way to look at debt and what you can do about debt reduction and debt elimination.

How You Should Look at Debt

When you consider that the first credit card was never intended to be used as they are now, you may be able to get a better picture of how people traditionally looked at debt. The first credit card was the Diner’s Card. It was issued to restaurant goers in New York City so that they would not need to carry cash with them when they patronized certain popular restaurants.

The intent was that a bill would then be sent to the home of the one who used the credit card, and then the bill would be paid in full when it was received. There never was the idea that it should have been paid in installments as it is now.

People back then believed in having limited debt and living within their means. It was considered dishonest (and unwise) to live above what you earned. They understood back then that it would eventually catch up with you and the false world you created would come crumbling down.

How Credit Card Companies Look at Debt

The credit card companies soon learned that people wanted to be able to make payments. They also discovered that more interest could be charged and people would accept it as part of the privilege of buying without cash. Interest levels have been tested and then raised over time.

Today, it is not unusual for people to be paying as much as 19% on credit cards. Some people even tolerate much higher interest rates than this – possibly as much as 30%, or more. Investor’s know that interest rates of about 10% means that the original amount becomes doubled in about seven years when the interest is compounded.

In more recent years, the credit card companies hid the amount that they were actually earning by not telling people how long it would take to pay off their debt. It took the new credit card law (which came into effect in February 2010) to now require credit card companies to reveal how long it will take you to pay off your current debt on each bill. This enables people to have a more  realistic (but unnerving) understanding of how much debt they really are in and how long it will take to get debt free.

How the Credit Report Companies Look at Debt

The FICO system was designed to enable lenders to have some kind of basis to make a determination about the creditworthiness of an individual before extending credit to them. Recently, the big three credit report companies – EquiFax, Experian, and TransUnion – formed VantageScore, and Experian no longer works with FICO.

Experian reveals some tips that are helpful when it comes to understanding how debt affects your credit score. They advise that for the ideal credit score you want to keep your debt lower than 20 percent of your total income. They also advise against closing out credit card accounts after they are paid off because it changes your debt-to-income ratios by lowering your credit ceiling.

The key to altering your credit score is to keep on making payments on time. FICO and VantageScore use your repayment history to calculate 35 percent of your credit score. That means that it is more important than anything else that goes into the calculation. It also means that you cannot raise your credit score by any other means, and, no, a debt consolidation company cannot help you here.

Debt reduction is another major factor in raising your credit score. It will also help you to have to pay less money in interest. Each month you should pay as much as you can toward your credit card bills – especially toward the one that has the highest amount of interest.

What You Can Do About Your Current Debt

In order to start to get control of your debt, it is necessary to just stop raising your debt level by continuing to use your credit cards. Paying with cash is an old-fashioned idea that works and there is no interest rate on cash.

Remember that any new amounts that are put onto a credit card are paid last. Fortunately, the new credit card law demands that purchases with the highest interest rates be paid first. While this will help reduce the worst interest rates on your card, it will not eliminate interest – which is probably rather high.

One of the best moves you could make would be to get a new balance transfer credit card and put your debt onto it. This is especially of value because it virtually reduces your credit card interest to zero (or low interest) for up to one year and allows all your payment money to go to reducing the debt.

If you want to quickly get out of debt, then you should do all you can with your current finances to eliminate all extras in spending to free up as much cash as possible. Then, take all you can, and pay down your debt quickly.

It is worth it even if you need to take an extra job or work some overtime (if available) to be able to reduce your debt faster. This does not necessarily pertain to debt on a mortgage or debt on a car, unless you want to get rid of those debts, too, but it certainly won’t hurt to eliminate that debt, as well.

How to erase your debt

When you get in debt over your head and are uncertain what to do about it, there really are only a couple of options that you can take. Some of them are easier solutions than others, but you want to take a look at the whole picture before you make your decision. Here are your choices when you must get out of debt.

Consolidate Debt Yourself

Probably the easiest way out of debt involves doing it yourself. While this is not possible in some cases, it is in most situations. Only you will be able to decide if this option is available to you.

Check to see if you can simply consolidate credit card debt and put it on a new credit card that will give you the opportunity to make balance transfers. This will only be an option to you if you still have rather good credit, and if your debt is not that large. It is harder to get one of these cards now, but if you can do it and still get low credit card interest on balances transferred, then it is a good deal. Even better, though, would be a card that gives you 0% APR interest on transfers for the life of the balance (very few will actually do this, and it does not include new charges). Watch out for fees that may apply to the transfers.

Another way to do it yourself would be to simply seek to free up more money from elsewhere in your monthly expenses in order to increase the payments made to each creditor. In the long run, this may actually be your best option. Another choice would be to take on another part-time job in order to bring the debt down to a controllable level.

Going for debt elimination yourself is also a very good way to help you bring your own debt under control. You will also need to learn better money management techniques, as well as create a family budget that you can stick to. It will also be necessary to leave the credit cards at home, too, especially when you go shopping.

If you like something that is a little more instantaneous, however, here are three more options.

Go for Debt Negotiation

Dealing directly with the lender is another way you can provide for yourself a debt solution. In many cases, a lender will work with you in terms of interest rates and amount of the payment size. The key here is simply to talk to your creditors. Do not let months go by without making at least a minimum payment on each bill.

Please note that some companies are willing to do this for you. What is happening all too often now is that they are oftentimes scams, and they may fail to ever contact your debtor at all. This leads to worse credit problems, and it may even be months before you realize what has been happening.

You may actually be surprised at the results you can achieve when you seek to work out some kind of new debt arrangement with the company. While some may not listen at all, many will. You really will not know what you can get until you try this step in seeking for your debt solution.

Seek a Debt Consolidation Loan Solution

After you have tried the above two solutions, then this is your next reasonable option. Getting a debt consolidation loan simply means that you put all your debt together, especially your high interest credit card debt, and then take out a new loan to cover the total amount. This should enable you to get a loan with less interest and smaller payments each month.

Most likely the new loan will have to be a secured loan, and you will have to use your home or car as collateral for it. If you can, you will want to be sure to make the payments on time, because this will also enable you to build up your credit score and repair any damage that may have occurred.

It is a good idea to consider getting a debt loan when you start seeing problems building up that indicate financial trouble may be on the horizon. With a better credit score still intact, you will be able to get a better interest rate, and possibly a longer time period to pay it off – although the goal would be to eliminate debt as soon as possible.

Paying more than the minimum is a good step because it will enable you to get out of debt sooner. It also will enable you to save money and reduce the cost of the overall interest on the lifetime of the consolidation loan.

Obtain Debt Services

There are good companies out there that offer to help you reduce your debt. Their main method is to contact your credit lenders and work out a new deal with them. A fee will be charged for the services and all you need to do is to pay the company an agreed upon sum every month.

Unfortunately, while it sounds ideal, it often does not happen that way. What is happening in some cases is that the company offering the debt services pockets the money every month for the fees, but may not have actually worked out a new deal with the creditor. As was mentioned earlier, this is something that you can do yourself, allowing you to save the cost of the fee.

The fee that is charged by some of these debt consolidators is usually a percentage of the debt still owed. In other words, for a debt of $10,000, you may pay about $2,000, or 20%. The company promises to reduce your loan by as much as 40 to 70%. If it were true, then it is not a bad deal. Too often, though, people are finding themselves without the fee money, and still just as much in debt as they were before – but now with damaged credit scores.

Debt consolidators should always be checked out before they are trusted. They should also have been in business long enough to have earned a good reputation before you trust them.

Declare Bankruptcy

This is another choice that is available for those in extreme debt that has no other solution. However, before it is even considered as a debt solution, the other options mentioned above should be attempted first – way before it gets to this point.

Designing and building a car or an aircraft takes careful and deliberate planning before the first part is ever made. Many hours are given to ensuring that it not only looks good on paper but that it will also work in the real world. Getting out of debt and becoming debt free will also take some planning and step by step action. Here are some steps you can use to get out of debt and stay that way.

Get Committed to Becoming Debt Free

Personally, I have found that the first step needed to make to become debt free is to be committed to doing it. After all, talking about money management and limiting excess spending is not going to be enough – and it is not going to happen.

Truthfully, you can have one or the other, but not both. Desiring to be debt free is just a dream, unless you are committed to making it happen. Find out now if you are willing to make that commitment, and if so, then take the next steps.

Take a few minutes and imagine what it would be like to be debt free. Imagine having a bank account where you have been able to save money and can buy things now and then – without being in debt! Then, think about what it would mean to not have to live with the pressure of wondering how you are going to meet next month’s bills. What a relief it is to be debt free.

Determine Your Essential Bills

The next step is to take a look at your bills and determine which ones are “must have” and which ones are optional. The optional ones you want to get rid of. This would include things that it is not necessary to have such as newspaper or video subscriptions, premium cable programs, etc.

Your goal here is to strip the excess off of your finances and get down to the bare minimum. Most people have a number of things that they pay for every month that they could do without. This could also include expenses, even small ones that you make on a regular basis. Things like eating lunch out every day, a daily latte, cigarettes, fast food, etc. can certainly add up each week and month.

In addition to this, however, you want to be able to look over your credit card bills and see where money is being wasted. If you have some that are high interest, as is probably the case, or that you are always paying late fees on, determine to either put them on a new balance transfer credit card for credit card consolidation, or pay it off as quickly as possible.

Establish a Budget and Eliminate Non-essentials

Getting your finances in order also means setting up a budget. This is something you will need to do in order to get out of debt. It will enable you to see where your money is going, but only if you stay on top of it and record everything.

Once you find where money is going for non-essential things, simply eliminate them, or, at least reduce them until you are sure your family budget can handle it. Besides telling you where your money is going, your budget also needs to tell you how much money is available for a certain category for that month. This way, you can simply look at it and will be able to tell if you have money available for a particular purchase or not.

Choose Smallest Debt and Pay It Off

In order to free up money the fastest, which will also enable you to put more toward other bills, you should pay off the smallest bill first. This will mean the smallest possible time until you can start putting more money toward your debt elimination.

It also will mean that you have one less bill quicker, and this can be refreshing and even rewarding to you. It will allow you to feel a little debt relief, which will even encourage you to continue working toward that goal.

Becoming debt free also means that you need to use cash on all your purchases and do not accumulate any more credit card debt. Remember, too, that debt simply means you will pay more for any and every purchase you make. It really does not matter if it was on sale when you bought it, because the interest will surely rob you of any sale benefit.

Once you pay that debt off be sure to apply the extra money toward a new debt – one that can be paid off quickly. Also, be sure that you are paying at least the minimum amount on each bill, plus some more each month. Ideally, you want to eliminate debt as fast as possible, and also to work to have to pay the least amount of interest, too.

Find Ways to Increase Income to Reduce Debt Faster

You may even want to take some steps to become debt free even faster. You can do this if you are able to temporarily take on a second job, or find some other way to make money.

Things like having a yard sale could be very beneficial, especially if you have some items around your house that you are not using but still have some value. EBay is another way to make some fast cash, or by putting an ad in the newspaper. Ads can also be placed online at places like Craigslist, or Kijiji.com.

Some other ideas that will let you get some extra cash to quickly reduce your debt include downsizing your house or apartment, getting an older model car (this will also help you save money on car insurance), increasing your deductible on your insurance policies, or renting out a room. Another option would be to start an online business of some kind. Many people are doing this now, some out of necessity because they cannot secure a job anywhere else, and it is working perfectly for them.

Getting out of debt requires some sincere and planned steps. How many of them can you apply today toward a better and debt free future?

If you have ever set up a budget, then you know that it may not have been the easiest thing to do. At least, it isn’t if you are not accustomed to using one. Once it is set, however, it is important to remember that like life, things are always changing.

This means that no matter how well planned your budget was when you first set it up, that there could easily be a need to adjust it considerably to meet your current situation. By doing so, it could mean that you would be able to save money on a larger scale. I discovered that my own budget changes rather frequently as my kids get older.

Here are some areas that you may want to look at in particular.

1. Auto Insurance

Your car insurance can be changed to save money, especially if you have an older car. You can raise the value of your deductible and save the money to put toward your next car. Just be sure to be able to pay for the deductible if there is an accident or your car gets stolen, because you will have to pay the deductible before the insurance company will pay anything. Fortunately for me, my insurance agent regularly reviews my insurance needs.

If you have another car that is insured by a different company, then check to see which one will give you the most savings by switching one of them. Most insurers will give you a discount for having multiple cars with them. Also, see what other discounts may be available and find out if you are receiving them.

If your kid is old enough to drive, like mine, be sure to check your budget before you go out and get insurance for them. It may just mean they might have to wait a little longer – it won’t hurt them – or let them get a job and pay for it.

2. Pay Your Bills on Time

A lot of people throw money down the drain just by being late with their bill payments. My income is sporadic and I often found myself paying a lot of late charges because I did not have money coming in as fast as I wanted it to – or when I needed it to be there.

Budgeting your money more effectively should result in you being able to work faster toward debt elimination and less waste. Most creditors charge late fees, and some credit card companies are even raising the interest rates on their cards for just one late payment. No one needs that. Paying on time will not only help you avoid late fees, but it will also enable you to have a better credit score – which can mean more borrowing power on larger items like a car or house.

3. Eat at Home More and Save Money

A lot of money in most households goes to the fast food companies. Unfortunately, this often leads to thicker midsections for many of us, and this can lead – doctors tell us – to more illness and doctor’s visits. Anytime you have illnesses and doctor’s visits unnecessarily, it is a time when it can quickly blow a budget and put you in debt – even if you have health insurance.

Eating at home can be healthier for you and the family, but there may need to be a short adjustment period. Keep healthier snacks around the house, plan a meal schedule, make enough for two meals each time and freeze the other half. This not only enables you to save money on groceries, but will also help save time on meal preparation later. You can save money also by taking bag lunches to work, or put meals in containers that you just throw in the microwave.

4. Get Healthy

If you are overweight, like many Americans, then you are probably paying too much in more areas than one. By losing the weight (I am working on it myself), you can save money on food expenses, health insurance, doctor’s visits, and end up feeling better about yourself, too. You may even be able to get lower life insurance costs, too, because, statistically, people with better weight control are more likely to live longer.

5. Rent or Borrow Movies

It is tempting to buy movies when they first come out. These will cost you a bundle, however. Remember that there are many movies out there and some of the older ones are very good, too. You can get movies at a much lower cost if you get them from your library (for free), rent them from a local box at the store, or, go online and watch some from Hulu.com, or a similar Web site. If you feel you have to have a new movie, you might split the cost with a friend, and then have a get together and watch it as a group.

6. Plan Your Activities

When you want to go and have some fun, you can stay within a budget if you plan it in advance. It is those sudden unplanned trips that have no budget in mind where you are most likely going to blow more money than you intended.

There are plenty of places where you can go for a low cost and almost free outing if you go online and look for them. This may include parks, local events, do things with friends, beaches, etc. The newspapers will also advertise some events, and you may even be able to find some online in your town. Some groups, such as libraries and parks, often conduct classes and activities for the children – and these are usually free.

By going to free places more often, your children will also begin to understand that it is not necessary to spend a lot of money to have fun. This will also help them to save money when they have a family of their own. It is a good idea to teach them how to budget, too, for their financial well being. It can also lead to them asking for money less often, too.

7. Plan Your Purchases

Everyone has plans to buy larger priced items from time to time. You can save money if you will wait for it to be on sale rather than buying it when it first comes out, or when it appears at a store near you. This will actually enable you to get similar items as your friends – but at a better price.

You can also get some rather amazing discounts from time to time if you are looking for them. Keep an eye on sale papers and on the price of the item you are looking to buy. Then buy it at a great price when it goes on sale. This also works well with coupons and other ways of saving money.

When was the last time you looked over your budget to see if it is helping you save money? Why not take a look at it this week?