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.

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.