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Getting Out of Debt: Ways to Pay It Off

You can pretend they'll go away on their own. You can throw your bills out and take the, 'what I don't see can't hurt me' attitude. You can see if someone else will pay your bills for you. All of these things wont get you out of debt though. Here I've listed a some good ways of getting out of debt. I've tried to order items from the most desirable way to least, although some of items could be move up or down, it is fair to say a good order to follow.

[ For those people scratching their heads and asking, 'what does this have to do with health?', follow this link **. ]

How do you get into debt?

Know what your faults or triggers are. Where is your weak point? What will you buy no matter what, even if you don't have the money? What causes you to not stop yourself from getting carried away when shopping? Are you a sucker for anything that looks like a deal or bargain, especially when don't need it? Do you obsessively look through catalogs or go online buying whatever strikes your fancy? If you can figure out what triggers the spending that gets you into debt, you can stop it! Curb those behaviors that leads you astray.

Change the way you think about debt. Debt is so easy to get into and available everywhere. Stores and Credit Cards want you to think about debt as the 'easy' way to get what you want, and get it now! Start thinking about debt, as a way for store owners and credit card companies to get your hard earned money by getting you to pay more than the price of the item. For example: you buy a cup of coffee, charge it and then you only pay the minimum on you credit card. That coffee was originally $3.50 becomes $10 in no time and it keeps building until you pay it in full. Suddenly, those things that looked good won't seem so appealing anymore. To simplify, every time you are tempted to pull our your credit card, look at the price of the item, add 10% for tax (an easy round number to work with) and double that number. That will be what you are really paying for when you charge the item to a credit card.

* Stop borrowing.

It is so obvious, but if you're charging, instead of using cash, even a little bit each time thinking 'its only a few dollars,' it adds up quickly. If you're having trouble managing your credit card spending, consider canceling all of you cards, cutting up your cards and only paying for things with cash, check, or debit card. Some have suggested and there's even been TV commercials about putting your cards in water and popping them in the freezer, to make them inaccessible. When you're tempted to use them, you'll have to wait until they thaw, giving you time to rethink your urge. It's still better cutting them up and getting rid of them.

After you have paid off all your cards, try living without applying for new card, at least for several more months. Once you do get a card, a single card, compare all the applications and read the fine print to see what your getting yourself into. When you do get a new card, always ask yourself, 'Do I have the cash to pay for this?' and if not, do not buy it. Learn to see what triggers you to pull your credit card out and mindlessly spend and unlearn them. Become a conscious consumer and think about what you really need versus what you just want because you saw or heard an ad. You may be a brain-washed consumer, so fight it and don't let them win!

* Know What You Owe

Develop a budget! By all means, regardless of the debt reduction strategies that you choose to employ, implement this one first! This might sound simple but, how many people are making payments and really don't know how much they owe. Sit down with all your bills and make a list: who you owe, how much you owe, the interest rate and minimum payment required. There, now you know what you owe. Add the minimum payments column and then the total of what you owe. Wow! That seems like a allot, doesn't it.

When you develop a budget what you're actually doing here is tracking your money, income and spending. You're looking at the problem, looking for the most troublesome areas. You may not even need any further debt reduction action than this. Developing a budget helps you to change your mind set about money; it forces you to live below your means instead of beyond them, and that translates into to saving money.

Build a defense against unwanted debt by creating an emergency fund. Not all debt comes from frivolous spending. You could have lost a job, excessive medical expenses, or face some other setback which could cause even the most spend-wise person to rely on credit cards or borrowed money just to make do. Limit the possibility of sending yourself spiraling into debt by putting more than six months of expenses someplace safe. Pay yourself first, by saving first before spending a dime, even paying bills you are being successful. Don't get into the habit of putting away a set amount and never having enough for bills, put aside a small amount, $10, $25, $50 or more out each paycheck, into a savings account in a different bank and after a year, you will have money in the bank for those 'rainy days.' Don't stop, just keep doing it, and you will be surprised by the possibilities.

Find your Net Worth (= Assets or Anything of value minus All your debt). This can be a great emotional boost to your self-esteem while paying down debt. It can also be a good strategy against getting into debt in the first place. Try this: Find some high priced item you don't have the cash for and figure how it would impact your net worth. Then take a look at how long it would take you to get back to not being in debt and money in the bank. That alone might keep you from getting yourself into debt.

Plan ahead by saving for it. Sounds easy and it is, to anticipate large purchases and save for them. Sometimes the car or washing machine falls apart, without warning. Try opening an account and start saving money for larger purchases in general. This would be a second savings account, beyond the bigger emergencies, to save for the 'what-if' thing. Look around, see what you need to replace if it broke and what could you live without, like a dishwasher-you do know how to wash dishes, don't you? If not, learn, because this is a savings for those things you really can not live without should they fall apart. You only have to save $8 to $12 out each paycheck to replace them.

* Pay it down, until there is nothing left

Now that you have a budget and know what you owe to whom, decide which credit card or debt will be paid off first: the one with the highest interest or the one you owe the most to, just choose one. Another strategy is to pick the card with the lowest amount owed, pay it off first as quickly as you can by paying a much as you can and then use what you paid them to put to either the highest interest rate or next lowest debt. Either way you put a number one by each debt and then decide which will be paid off next and so forth until they are all numbered. That's the beginning step of getting Out of Debt. Now pay it down until there is nothing left to pay. Wow, your finally Free! It feels great to not have that monthly stress any longer, so don't be stupid and do it to yourself again.

* Get Rid Of Temptation

You might want to do this with someone so they can support you. Take out all that plastic you have and don't hold back a single one. Lay them out on the table. Pick a card, any card and call the number on the back or find the number on your monthly statement and Cancel the card. Cancel it! Let them know you will be making payments until it is paid off in Full. Now get the best scissors in the house and cut up that plastic. Now keep going, until all your cards are Canceled and cut up. Now make a promise to yourself that you will not apply for another card or.... (you fill in the blank but, make it a good punishment, take something away that means something to you or if you can't decide let your support offer some suggestions).

* Pay More Than the Minimum

Now break the habit of only paying the minimum required each month which prolongs the agony. This is also what the banks want you to do. The longer you take to repay the charges, the more money they make and the less money you have. Don't play that game anymore.

Now that you know how much you owe, you will decide how much to pay everyone. Subtract what you owe from what you make every month and see how much of that number can be used (after other expenses) to help pay off your debt. Even if its a small amount it's better than nothing. Ways to find a little extra cash is: cut back on your smoking; 2 or more cigarettes a day will reduce the number of packs you buy a week, don't eat out for lunch once or twice a week, cut out desserts and snaking, have one or two less latte or other coffee every day from your local coffee shop, don't bring home the beer anymore and don't stop at your favorite pub either, don't buy anymore CD's or DVD's, don't buy that magazine or book, use the bus several times a week to save on gas and parking. These are just a few ideas and I'm sure you can come up with a lot more. Keeping these habits will only make things worse. Now that you found a few extra dollars each day or week, you send them to that card or other debt in order to get it paid off that much sooner. When that card or debt is paid off, use all the money to pay off the next debt and so forth, until all your debts are paid off in full.

Paying more than the monthly minimum on your credit cards will save you thousands of dollar over paying just the minimum. Paying more than the minimum monthly payments, continuously is the only sure way to get out of debt without have to resort to more drastic measures, like bankruptcy. As a matter of fact, do it with all of your debt. Pay more, even a little more, toward your higher-interest cards first.

* Save Your Pocket Change

Everyday put all your pocket change into a bowl or jar. At end of a Month, take all that change to the bank and make a deposit. Use this extra deposit to pay down your highest bill or pay down or off a credit card with the highest interest. Once your bills are all paid off, use this as way to save for your retirement and once you've paid the maximum, use it as a way to save for a vacation, a major repair around the home, buy a major appliance or to fix your car. If your like most people, you can save at least $25, or more, a week which comes to $1,300 or more a year. I bet you never thought you had that kind of money, especially for doing so little for it, but you have to keep saving or you wont.

* Use Your Savings Account

I don't know of any savings account that pays an interest rate that keeps up with inflation or high enough to warrant keeping a large sum in such an account. Ever since Reagan, Banks have paid less than inflation on your savings while lending it out for huge profits. It just doesn't make sense. The best thing to do is use that money just laying around not earning a whole lot to help pay off your high interest debt. The higher the interest on your debt, the more attractive repayment becomes versus keeping it in a low paying savings account. If your worried about possibly needing some for an emergency, keep one third in your savings account and use the rest to pay off your high interest debt. It only makes sense. Once your debt-free, pay yourself first, at least half of what you spend on paying your debt, and put it into higher interest accounts, like a Certificate of Deposit or Money Market account. Learn to invest wisely and save for a 'rainy day.'

* Sell Your Stuff

Go through your house and collect all those things you do not use, do not want or no longer need. Stop hanging onto stuff and get rid of it instead. Have a garage sale and use every dime you make to lower your debt. It is better to clean out your house, make room and have less clutter than staying in debt.

Sell some of your assets to pay down your debt. This is beyond just clutter, but do you really need it or can you sell it to help pay down your debt? You may have a closet full of things that could bring you some extra capital to help get those debts under control. Who knows, you may even wind up starting a part-time business which can pay for retirement in comfort. Do you know how much money is made on eBay yearly? Billions, at least that's what they advertise. You wont be making billions, but can list your items for sale. Look at less expensive options besides eBay, like Craigslist. Advertise your garage sale for free, at least a week or two in advance and post a reminder 48 hours before it happens to remind people and watch people show up. You have to get the word out about your sale or no one will show up.

What you do not sell, give to charity and use that to lower your taxes and maybe you'll get something back from the IRS, which can then used against your debt.

* Get A Part-Time Job

No one likes the idea of working even more, but if your really in debt and need a way to pay the bills, get a part-time job. You do it for only as long as it takes to get out of debt plus one month. The extra month's paycheck you'll split between starting a savings plan and taking yourself out for some fun, you deserve it. Use this as a way to keep yourself from getting so deeply into debt again. The kinds of things you could do:

Deliver newspapers early in the morning. Mow lawns on the weekend. Help people around your neighborhood doing odd jobs. Work in a coffee shop. Turn a hobby into a part-time cash maker. Landscape a few times in the summer for cash. Shovel snow near your home. Look in the paper for a part-time job to earn a little extra to pay off your debt and help put money aside for the first time in your life. There are a lot of small jobs you can do, that can be done around your full-time job to earn the extra cash to pay off your debts. So, what are you waiting for?

* Get Help

It's not a bad thing to ask someone to help you with your debt. Ask friends or family to help you work out a payment plan to get out of debt. Or, check the yellow pages in your area for a credit counselor or people who offer education and assistance. Some organizations will help by taking on your bill paying for a fee. These people or groups help you figure out what you owe and make arrangements that get your debts paid off. There are also financial counselors who can help you get your debt under control. Getting help is good if you find yourself undisciplined or just not getting ahead because you never learned to manage your money well. It doesn't matter what people think of you, it only matters how you feel once your out of debt and saving what you normally spent on debt and learn to invest it with a goal: education, retirement, vacation, etc.

Another form of help is to consolidate your debt under a more favorable interest rate. Depending on your circumstances, you might be able to get a bank loan to pay off your credit cards and other debt. Or you might roll your debt from various cards onto a single, with a much more favorable interest rate.

* Refinance.

If you own your own home the lowest interest rates are obtainable by refinancing for an amount to pay off your existing mortgage (if there is one) and your other debts. If you want to keep your current mortgage because you can't get a lower rate or it has a prepayment penalty, then opt for a home equity loan or line of credit to pay off your other debts. These are the classic debt consolidation loans.

A loan secured on other personal property. If you have an expensive car or boat that you have equity in, consider a loan secured by that asset to get the funds you need to pay down your debts.

An unsecured loan. If you don't have any other property or assets, an unsecured loan may be an alternative. An unsecured loan usually has a shorter term, normally with a maximum of 5 to 10 years. The monthly payments will therefore be higher, but the debt principal will also reduce more quickly. Because there is no security you should expect to pay a higher interest rate. Unsecured personal loans generally require good credit in order to obtain.

* Borrow From Family and / or Friends

Perhaps your family or friends could help with a loan. Who else knows, trusts and loves you as they do? Chances are you'll get a very favorable interest rate, but don't count on it. Remember, you are at their mercy and you need to be a bit humble here. They may even tolerate a late payment or two. But, if you want to maintain the relationship, it's best to keep things on the straight and narrow by using some written agreement like a personal note. You should clearly establish the interest and repayment schedule in writing to avoid misunderstandings and hard feelings. And it goes without saying that you must be scrupulous about adhering to that schedule. Otherwise, you can forget the family reunions and birthday presents.

* Renegotiate Terms with your Creditors

Okay, you've done all you can. Savings are gone, relatives have been tapped out, you don't have a home or 401(k) or life insurance policy to borrow against. You feel like you're against that proverbial wall. The money just isn't there. Is bankruptcy the only way out? No way. Try pulling that ace out of your sleeve prior to taking that step. What ace? The threat of bankruptcy ace, of course. Let your creditors know your situation. Tell them that if you are unable to renegotiate terms, then you have no other recourse except to declare bankruptcy. Ask for a new and lower repayment schedule, request a lower interest rate, and appeal to their desire to receive payment. Faced with the prospect that you may resort to such a drastic step, creditors will do what they can to protect themselves against a total loss. Indeed, many will negotiate away the farm before they'll be willing to write off your debt. As lawyers love to say, everything is negotiable. Therefore, what have you to lose save time? It's worth a try. And if you don't wish to do this yourself, organizations exist who can help you with this.

* Move Your Balances to a Lower-Interest Card

Ok, I said you shouldn't get another credit card but, if all your cards are over 15% interest rate then it may be best to get a card with a lower interest rate to pay off the other cards with the highest interest rates. Now, this only works if you qualify for a new card at a lower interest rate, so don't just get one and see no improvement in your debt situation and before you act, examine the offer closely. Will the interest rate after the introductory period be higher than you're paying now? You may want to reconsider or you may have to switch again after just a few months. That, in turn, could give rise to another surprise. Banks have caught on to the charge card hoppers who switch from card to card to take advantage of the low introductory rates. Many of these offers now stipulate that if you transfer balances from the new card within a 12-month period, the normal interest rate will be applied to all outstanding balances retroactively. On the other hand if you have one with a low interest rate, have you reached the maximum limit on that card? If not, consider transferring a higher interest card to that one. Many credit cards permit this, and it may make sense to use that feature. It's best to trade in higher interest debt for one at is lower at any time. Not only will it reduce you payments allowing you to pay it off sooner but it makes the same payment you made at the higher interest rate go farther. It's kind of like finding a few extra dollar to help make payments and get out of debt. Another thing you can try is call you card issuer and re-negotiate your rate. Why not ask for a lower rate and let them know your doing this to pay them and not file bankruptcy. Just remember, know what your getting yourself into before hopping from one card to another or even getting a new card.

* Get a Home-Equity Loan

Do you own your own home and have some equity that's accumulated through the years as you've paid off the mortgage? If so, now is the time to consider a Home Equity Loan (HEL) line of credit for the maximum amount you can get. A HEL gives you a double whammy. First, you use the loan proceeds to pay down your debt, thus trading something like an 18% credit card interest for something usually less than half that. Second, most homeowners itemize on income tax returns and HEL interest under most circumstances is a deductible item. The danger here is falling into the trap that many people do. These people get a HEL, pay off existing credit card debt or other high interest loans, and then ring up new charges on the credit cards all over again. Now these people have the HEL to repay on top of additional credit card debt. What needs to happened is get rid of the credit cards by canceling all but one and cut them up and think about how and when you'll use that card, like emergencies only. The hole you're trying to get out of just got much, much deeper. Use the HEL to pay off your cards, don't fall into the trap like so many people and acquire new debt and then keep them paid off until well after the HEL is repaid. Instead of acquiring new debt, start using those payment to build your investments, for retirement, to go back to school, replace something really old with something new.

*Get a Home Improvement Loan

[You may want to consider this before a Home Equity Loan.] Now you might be wondering, why get further into debt to make improvements to the home when you're trying to get out of debt. Getting out of debt needs a new way of thinking about things creatively. You are going to make home improvements that are going to cut utility bills. That's right, your going into debt to cut expenses. Sounds contradictory but it is not, as most Home Improvement Loans (HIL) have a lower interest rate and the money you save on your energy bill will go toward paying for the loan and to get yourself out of debt at the same time. If any of your loan is left over, put it toward the paying of your debt.

Here is what you need to do: An Energy Audit by checking your insulation and if you have enough, make a list of all the light fixtures and types of bulbs they take, also make a list of all the appliances that are nearly 10 years old or are not Energy Star Appliances. If you find this too hard, hire someone to do an energy audit of your home.

After your audit, go shopping, not literally, more like window comparison shopping. The idea is to look for the best price on the best items, like a new refrigerator or washing machines and insulation. While you are out looking around, shop for low energy light bulbs, compact florescent bulbs or light emitting diode lights. These lights may cost more in the beginning but they will pay for themselves in short order, as they cut your electric bill. If you have a 60 watt bulb, replacing it with a compact florescent bulb, cuts that one bulbs energy usage by 75% and the more you replace, the more you save. Once you have your loan is when you go shopping for real.

Don't stop at the little things. Take a look into adding Solar panels to provide heat and electricity or if you can't afford both, start by getting your heat from the Sun and then a few years later, add Photovoltaic panels to cut you electric bill. Add insulation, to the attic and walls, and replace old windows with high efficiency ones. You can actually cut your energy bill so much your paying nearly nothing or, if it applies in your area, the utility company will pay you, at times when your creating more energy than your using. This can all be done in stages, each year one more thing, using some of the savings to pay for something that will further cut your energy bills. When it comes to the high ticket items, get the loan, and just take care of several things at once, it only compounds your savings in the end. Remember, the more the utility company charges, the more you can save.

The idea here is to start with conservation measures moving toward reducing your energy bill as much as possible before becoming your own energy company. This is one of the best uses of borrowed money, as your cutting expenses and hopefully moving toward making your life a little less worrisome as energy bills continue to climb ever higher.

* Borrow Against Your Life Insurance

Do you have life insurance that has a cash value? If so, borrow against the policy. Yes, you're borrowing your own money. But the interest rate typically is well below commercial rates, and you can take your time repaying the loan, but you do have to repay it. If you die before it's repaid, the outstanding balance plus interest will be deducted from the face value of the policy payable to the beneficiary. As a negative, that seems a small price to pay to get out of debt now. Keep in mind that you shouldn't borrow more than you really need to pay off one possibly two high interest debts. Once you've done that, use the money you used to pay the high interest amounts to pay back the life insurance policy and do it as part of your repayment plan.

* Borrow From Your 401(k)

Do you participate in a 401(k) retirement plan at work? Most 401(k) plans have a loan feature that lets you borrow up to 50% of the account's value or $50,000 (this number could change over time), whichever is smaller. Interest rates usually are a point or two above prime, which usually makes them cheaper than credit cards. Thus, 401(k) plan loans may be an option to debt repayment. Not only is the interest typically much lower than that on credit cards, the best part is you pay it to yourself. That's right, every dime in interest paid on a 401(k) loan goes directly into the your 401(k) account, not some lender's. That lessens the bite even more. But, there are some drawbacks. First, the loan and interest will be repaid with after-tax dollars, but the interest will be taxed again when you finally withdraw money from the 401(k) many years later. Additionally, you must repay this loan in five years or less. If you leave your employer prior to full repayment, the outstanding balance becomes due and payable immediately. If it's not repaid, that amount will be treated as a distribution and you will have to pay a penalty and taxes with the tax man taxing you on that amount borrowed at the regular tax rate. And if you're under the age of 59, you will also be assessed an additional 10% excise tax (this can change) as a penalty for an early withdrawal of retirement funds. Make sure any 401(k) loan can be repaid before you leave your job otherwise don't borrow the money.

* Only As A Last Resort, File For Bankruptcy

NOTE: Now, keep in mind, the law changes regarding bankruptcy and the information may not be the most current and sometimes making it harder to file or get credit in the future. Be sure to learn everything you can before making the decision to file for bankruptcy.

What if you decide you can't pay down your debt using any of the methods listed above? What should you do? The absolute last resort is bankruptcy. Everyone has a moral obligation to repay their debts to the utmost of their ability. There are times, though, when repayment may be impossible. In those cases, then, bankruptcy may be the only course of action. Nevertheless, be aware there are significant drawbacks to using this avenue. Your credit record will contain this information for 5 to 10 years, thus ensuring you will have a tough time obtaining credit you can afford during that period. Additionally, as odd as it seems, it also will cost you money to file for bankruptcy. Attorney and court filing fees will cost hundreds of dollars, and they must be paid to obtain the relief sought.

There are two types of personal bankruptcy relief, Chapter 7 and Chapter 13.

Chapter 7 is straight bankruptcy that allows the discharge of almost all debts. Those that aren't discharged are alimony, child support, taxes, loans obtained through filing false financial statements, loans not listed in the bankruptcy petition, legal judgments against the petitioner, and student loans. While Chapter 7 relieves you of the responsibility of repaying most creditors, you may also have to surrender much of the property you own to help satisfy the debt. In general, though, you may usually retain your car, tools of your trade, your home and most personal property.

Chapter 13, sometimes called the "wage-earner plan," is different. Under Chapter 13, you keep your property but surrender control of your finances to the bankruptcy court. The court approves a repayment plan based on your financial resources that provides for repayment of all or part of your debt over a three-to-five-year period. During that time, your creditors may not harass you for repayment. You also incur no interest charges on the indebtedness during the repayment period. When all conditions of the court-approved plan have been fulfilled, you emerge debt-free from the bankruptcy.

Now, there have to be other ideas on getting out of debt, so, if anyone has any other ways of reducing debt, legally, email your suggestion so it might be shared with everyone. Getting out of debt is hard and causes someone to take a closer look at their life, at least its hoped people would. For most people, it's a question of, 'Why am I buying this?' Is it something that's really needed or are you buying it because your trying to make someone else happy or to keep up with the so called 'Joneses.' Decide once and for all, not to buy anything that isn't absolutely needed. Live more frugally. Don't buy on impulse. Don't follow trends. Living a frugal life doesn't mean you have live an austere life. Don't fall into the debt trap again of buying the newest and latest thing the minute it becomes available, it will only get you back into the dark hole of debt and then you have to follow these steps all over again. Learn to say, 'NO' to debt and excessive spending and keep control over where you money goes. Instead of debt, learn to save, learn to invest wisely and before you reach retirement you can be a millionaire.

**Some are asking themselves, what does this have to do with health? If your one of those people, don't worry about your limited thinking, its normal in the U.S. This page deals with emotional and mental health, as money worries is one of the biggest stressors in the U.S. and debt only adds more stress. Living paycheck-to-paycheck or seeming to never have enough, poor budgeting, seems to be a chronic problem. By eliminating the stress that comes from being in debt and instead work on saving money to invest it, relieves these worries surrounding money. So, you see, this has everything to do with health, so long as you don't limit your thinking.

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