Debt Can Be Incredibly Overwhelming
“Every time I sat down to pay bills, I felt like I couldn’t breathe. Our debt was so overwhelming. Sometimes it felt like someone had dropped a huge rock on my chest.”
That’s how Vanessa described her state of mind before she and her husband Anthony decided to get serious about taking control of their financial future. Vanessa and Anthony (not their real names) are smart, hard-working people. They both had good jobs during the early years of their marriage, took on what they thought was a reasonable amount of debt, and made it a point to pay their bills on time.
After the economy took a nose dive, Vanessa was laid off. The couple’s monthly budget got tight. With less money coming in, they started relying on credit cards and other types of debt to keep their monthly bills current. Vanessa eventually found a new job – but even then the couple’s combined take-home pay wasn’t enough to cover monthly expenses and ballooning credit card bills.
With every passing month, they found themselves sinking deeper into a hole of debt.
Getting Out of Debt: A Daunting Task
Financial “holes” come in all shapes and sizes. Your situation probably isn’t identical to the one Vanessa and Anthony faced. Persistent budget shortfalls and mounting debt can be caused by a whole laundry list of factors. A family illness, student loan debt, identity theft, or long-term unemployment are just a few examples. If you’ve read this far, chances are good that you are in a debt hole and looking to find a way out.
Where do you go from here?
Getting Out of Debt Tip #1: Give Yourself a Break
For starters, rest assured that you’re not alone. According to a MoneyRates.com survey conducted earlier this year, 35 percent of respondents reported that their biggest concern was being able to meet essential expenses and 22 percent reported regrets about accumulating too much debt. Although the U.S. economy has been slowly crawling its way back from the financial crisis that began in 2008, many families are still struggling.
Being concerned about excessive debt is a good thing; you should be concerned! But beating yourself up over it does nothing to solve the problem. It can also cloud your judgment and make you more prone to spend more, just to (temporarily) make yourself feel better. Instead of worrying about things that happened in the past, let it go. Forgive yourself and focus all your energy on building the financial future you want.
Getting Out of Debt Tip #2: Stop Creating More Debt
Once you’ve resolved to dig your way out, don’t slow your progress by spending your way into even more debt. Stop using credit cards for impulse purchases and other things you don’t really need.
If you’ve been using credit cards, back-to-back payday loans, or other forms of credit just to keep up with monthly expenses, consider consulting a reputable financial counselor (more on this later).
To keep credit cards from being a temptation, some experts recommend keeping credit cards out of your reach. Techniques that have worked for some people include cutting up all but one major credit card, canceling high interest rate cards, or keeping them locked up.
A word of caution: Before you do anything with your credit cards, conduct a little research on the dos and don’ts of closing credit cards.
As Jenna Lee explains in U.S. News & World Report Money blog, canceling credit card accounts has the potential to ding an individual’s credit score due to decreased overall credit capacity. On the other hand, credit scores can also be negatively impacted by the number and types of credit card accounts a person has. If you do decide to cancel some of your accounts, remember that simply cutting up a card doesn’t mean the account is closed. You still have to contact the issuer to cancel the card. Deciding which cards to keep and which to cancel should be based on your personal circumstances and the potential impact to your credit score.
Getting Out of Debt Tip #3: Understanding the Situation
Taking a clear-eyed look at how much debt you have is scary if you’re already in over your head. Take a deep breath and just do it. You’ll be glad you did in the long run!
Gather up your account statements, bills, and other financial documents. Request copies of your credit report from the three major credit reporting agencies. Federal law requires that all three agencies – Equifax, Experian, and TransUnion – to provide free annual credit reports to individuals who request them. You can request a free annual report online from all three agencies.
Once you have everything in front of you, add up your total debt. Knowing the amount you owe in aggregate is a reality check. Ideally, it will strengthen your determination and give you an idea of how long it will take to pay off. You can project a variety of payoff scenarios by using our free tools, like our debt repayment calculator.
Make a list (and we highly recommend using our free budgeting tool!) of your monthly expenses like rent, utilities, food, transportation, along with the minimum monthly payments for student loans, credit cards, installment loans, and other debt. Add up the total to see how much money you have to pay out each month.
Next Steps for Getting Out of Debt
Deciding what your next steps should be will depend on the size of your debt, your income, and other circumstances.
If your monthly income is more than your total monthly debt payments, you may be able to create a budget and repayment plan on your own. If it’s obvious right away that your debt is much larger than your capacity to pay it back, your next step may be choosing a reputable credit counselor.
For Vanessa and Anthony, credit counseling was the answer.
“We gathered up our pay stubs, account statements, and bills and took them to an accountant in our hometown,” Vanessa said. “He reviewed our financial situation and referred us to a professional who specializes in negotiating with creditors and helping people solve large debt problems. We still have a way to go, but now it feels manageable. My only regret is that we didn’t confront our debt problem sooner.”