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 a horrible thing when a person realizes that they are really in debt and it does not seem that there is much that they can do about it. Once that happens, it places a lot of stress on the individual and family as they go through the process of trying to keep their heads above water. The obvious goal then becomes how to get out of debt. Here are some tips to help you get out of debt fast.

Calculate Your Total Indebtedness

Start out by calculating your total indebtedness. This will help you to see very plainly exactly how much you owe. You are going to make a chart out of it, along with each debtor and then plot it each month to watch the numbers decline as you pay it off. Reaching zero will become your goal as you seek to eliminate debt and even become debt free.

The numbers that you will end up with may actually surprise you. Many people do not know how much debt they really have until they are confronted with it in a big way and start looking for ways to get out of debt.

Establish a Family Budget and Watch Every Cent

Once you understand how much you owe, then it will be absolutely necessary to set up a family budget. Before you can do this, however, you will need to keep an accurate record of where all your money goes for two weeks to a month. This will help you learn where every penny is going.

This will also probably be enlightening once you begin to see how much you spend, as well as what other family members spend, on things that are really not that important. Oftentimes, you may only be spending a couple of dollars a day on something like lattes, or an occasional DVD, or lunch or fast food, etc, but it really adds up after a month goes by. This could include things like cigarettes, alcohol, newspapers or magazines, coffee, etc.

The easiest way to keep track of every penny is to write down your expenditures at the end of each day. Make several categories for your purchases, so that you can get a very good idea where the money is disappearing to each month. After every penny is accounted for, look for places of unnecessary waste and cut out those expenses that you can do without immediately. If children are in the home, it will be a very good idea to explain to them that things are a little tight and that your family will now have to temporarily do without them.

Learn New Ways to Save Money

If the debt is really high, then you will also want to add a few more drastic measures. This will include finding many ways to save money on ordinary things. There are literally hundreds of ways to reduce monthly costs on most everything where there is not a fixed price tag attached to it.

Go online and start doing research on saving money tips. This can include tips on how to reduce your grocery bill, your car expenses, your insurances, your electric bill, your taxes, etc.

You can also save money and still have some fun, too, which is important for the children. There are often free events at public parks, libraries, museums, and much more. Outings do not need to be expensive in order for kids to have fun. Sometimes a simple walk through the woods or park is plenty of fun if you make it interesting for them.

Contact Your Creditors Quickly

If you realize that you are going to have problems with making payments on your debt as expected, then you will need to contact your creditors quickly and explain the situation to them. This will give you opportunity to do two things.

As you talk to them, you want to ask them about giving you a lower interest rate. Also, if your debt is high and you are struggling to pay it at all, you might actually ask them for a debt reduction. This is where they simply reduce your debt because they want to. They can do this when pressed and when they realize that you might not be able to pay them much at all. They also frequently lower interest rates for card owners who ask them, because they know that if they don’t, you will get credit from somewhere else.

Try Various Avenues of Debt Consolidation

If you are thinking about using a debt consolidation service, you want to be very careful about this. There are many of these agencies that are simply out to get your money. In many cases, you can do all that they do yourself – and save money doing it.

If you have a lot of credit card debt, and if your credit is still in good shape, you may want to try and consolidate your credit card debt to a new balance transfer credit card. This would be better – for one year – to put as much of your balances from other credit cards onto a new one – especially if you can get one with 0% interest.

Even if you do decide to get a personal loan, or a home equity loan, remember that you cannot do better than 0% interest. This will enable you to save money, but you will need to put as much against this balance each month as possible to work toward paying it off.

Aim for Total Debt Elimination

Each of these steps is designed to help you survive a debt problem. The plain truth, though, is that unless you keep on with careful and wise money management that it will probably happen again. Take a new look at debt and what it has cost you as you pay interest over many years.

Aim for a debt free life. That is the best kind and it will enable you to make purchases as you decide they are needed. Reducing debt, with the possible exceptions of house and car loans, will give you a freedom you have not experienced in a long time.

Do you really need a debt consolidation loan?

Every year, millions of Americans find themselves in debt over their heads – or almost there. Once there, most people quickly decide that it is not a pleasant situation to be in, and they start looking for a way out. If you are there now, here are some tips that could enable you to get out of debt.

Restructure Your Own Finances

No matter what else you do, you will probably want to try and accomplish this one on your own. Restructuring your finances, if you have not already done so, will enable you to get a better handle on your money and see where it is all going. This will enable you to quickly put an end to overspending, or spending money that you may not be aware of, such as a daily latte which is costing you about $15 extra per week.

Setting up a family budget is an excellent way to keep track of all your expenses and quickly be able to discover those little holes that your money is unnecessarily disappearing into each week. You will also need to write down all your monthly bills and determine which ones you can eliminate. You want to think survival budget, which means bare minimum until you can get back on your feet financially. Becoming debt free is a great goal to ultimately shoot for – as soon as possible.

Get Debt Counseling

Debt counseling is often necessary for those who are either not able to reign in their own finances, or do not know how to set up a household budget and stick to it. It will often cost to get such services and it may take awhile to actually benefit from it. Some groups may offer free financial counseling which can certainly be beneficial if you are determined to get out of debt and stay there.

An alternative to debt counseling would be to learn all you can about it yourself online. There is plenty of information available to help you avoid mistakes and do it right. The main thing, however, is to get started right away.

There are even Websites where you can go to if you know how to use Excel and download pre-made spreadsheets for a home budget. A Google search will enable you to easily find them and start using them. You may want to test two or three before you settle on a particular version of the personal finance software. Some of these are free.

Talk to a Relative

Here is an option that may help you in more ways than one with your debt problem. If you have a relative or family member who is willing to loan you some money to get you back on your feet, then this could be an ideal situation for you and your family.

Before you approach a relative for help, you want to know all the facts first. You will want to know exactly how much debt you have, how much you want to borrow, and how much you will be able to pay them back each month. It is not necessary to borrow all the money you owe, just enough to eliminate major debts, allowing you to get reduced payments that are within your ability to maintain payments on.

The main reason why this could be your best option, is because a relative will often loan you money on either a low interest, or even possibly a no interest, basis. Oftentimes, it will certainly be a little lower than you could get anywhere else. Of course, the better your relationship is with your relative (and your credibility), the better terms you will be able to get.

A possible negative aspect of borrowing from a relative is that if your credit has been damaged, then you could use a small debt consolidation loan to help repair our credit. A lender will report to the credit bureau about the timeliness of your payments, which could help you slowly get a better credit score. Be sure, however, that they report to at least one of the major three credit bureaus in order to get the most benefit.

Sell Personal Items

Personal debt can often get out of control if you are in the habit of always buying new things. This is especially true if you like to buy fancier cars. If you have a car that you are struggling to make payments on, it would be wiser to trade it in on an older model – one that you can afford to make payments on – and pay less insurance for, too.

If a car is one of the main causes of why you are in debt, then you may want to talk to your insurance agent about which car models will give you the lowest rates. Obviously, the most stolen models cannot do this, and neither will the sportier models. While you are talking to them, find out what ways are available to you to be able to reduce your car insurance premiums even more.

If you have a problem with being able to make your house payments, you can consider selling it for a lower cost version. In some cases, people today are even willing to make trades on their homes, which could speed up the process.

Get a Second Job

One more option to help you be able to either reduce debt or eliminate debt altogether would be to get a second job for a while. The are plenty of ways you could work a second job and you may be able to work the number of hours you want. It is also possible that you could find work online that will enable you to work at home, too. Beware of scams, however, and as a general rule, do not pay to find out about work. A real job does not require you to pay anything.

Hopefully, you will be able to handle your own debt problem without too much difficulty. Think twice about using the popular debt consolidation agencies because many of them are scams. Try these ideas first to get out of debt if at all possible.

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.

When you start finding that there is not enough paycheck to last until the end of the month, it may be time to see what can be done about it. Having problems with debt should be dealt with quickly in order to prevent ruining your credit score. Here is a serious look at debt consolidation to determine if it really is your best course of action.

Review Your Family Budget First

The first step you want to take should not be to run to the bank and get a debt loan. The first thing you want to do is to review your family budget and see where the money is going.

This needs to be the first step because it is undoubtedly the thing that could prevent future problems, but there are a few steps involved. You see, even with a debt consolidation loan, it will only help you temporarily if you do not learn how to control your finances. Better money management practices will not only help you get out of debt and stay there, but it will also help you to get better mileage out of your dollar, and to prepare better for your future.

As you look over your budget, you want to look at it critically to determine where money is going unnecessarily. You want to find out all those extra things and eliminate them so that you can free up more money each month to go toward reducing your debts and meeting your monthly obligations.

In some cases, you may find that you simply are buying beyond your income. If that is the case, getting a bill consolidation loan really is not the solution you need. Instead, it would be better if you simply put some (or develop some) self-discipline into your spending habits and learn to say “No” much more often to those things not needed. With each new purchase you are about to make, ask yourself whether or not you really need it, and then decide.

Will Debt Consolidation Really Help?

If you are prone to look at debt consolidation as a quick fix, and then intend to rack up more debt with the extra money that becomes available – you can be sure that more serious financial trouble is headed your way. It won’t take long, either, to find you.

What many people do who consolidate credit card debt, is to just turn around and start charging again on those now empty credit cards. They have not learned from their experience.

It will only work for you if you either stop carrying around those credit cards, or destroy them. Paying with cash only, or paying off any new credit card charges in full each month as they come, is the only way to properly handle an excess of debt.

If you do not have a lot of debt and your credit score is still good, you may want to try and get a new balance transfer credit card. This is your best option because it will actually enable you to get very low, or even no interest, for up to a year. You could transfer your current credit card debt to the new card and save a lot of money. Then, it must become your goal to pay down as much of this debt as you can within that year.

What Does a Debt Consolidation Loan Do?

When you take out a consolidation loan for credit card debt, there are two things that this needs to accomplish. It should enable you to get a lower payment each month than the individual bills will have when combined, and secondly, it should give you a better interest rate.

Combined, these two features of a debt loan consolidation will free up money for you as soon as the loan is approved. If you make your payments on time, it should also enable you to possibly even raise your credit score some over time.

If you choose to go through a debt services agency, or get debt counseling, then you may or may not get additional training in money management. In most cases, if you are willing to rein in the finances yourself, you can learn on your own what you need to know. Declaring bankruptcy, however, is an altogether different matter.

Can Debt Consolidation Help if You Have Bad Credit?

If you are past having good credit, you may still be able to qualify for debt consolidation. However, to be honest, you will probably have to spend quite a bit of time looking for a lender.

The truth is that they are out there, but you will need to be very careful about who you get your money from once you get to the stage of desperate. There are many unscrupulous people and companies who will be glad to get you to sign the papers and give you the money, but the cost is higher than what you should be willing to pay.

Check out any potential lender online for its reputation. Also, be sure to check with the Better Business Bureau before you agree to sign anything.

What about Failure to Pay Off the Debt Consolidation Loan?

When you get a consolidation loan from a lender, most likely it will be a secured debt consolidation. This means that you will have to offer some collateral in order to get the loan. It will usually be your car or your home.

While most credit card companies do not have any collateral for the credit they extend to you, a debt consolidation loan comes with a price tag on it if you fail to pay back the loan. If you fail to meet the agreed upon payments, they will repossess your car or foreclose on your home. Obviously, this makes it in your best interest to make payments monthly.

The experience of getting into debt that you cannot handle should make you want to get out of debt as soon as possible. No one wants to live in debt, but many have been in debt so long that they have forgotten what it means to be debt free. Hopefully, even if you have to get a debt consolidation loan, you will work toward that goal – and reach it as soon as possible.

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?