Many people find themselves in a very high level of debt with some in a truly desperate situation.
When the problem is already serious, the solution is unfortunately not simple and requires many sacrifices.
But it also allows us to learn, and not fall back into the trap of minimum payments.
Any plan to get out of debt implies that one can pay at least the minimum monthly payment on all of their credit cards, and a little bit more. If you really can’t, then you have to take additional steps, which we’ll discuss below:
The steps to follow are:
Recognize and face:
The first step in solving any problem is to recognize it.
You should gather the last statements of all the credit cards and add up the balances to see what the total debt is.
This way, you will have calculated the size of the debt and have a complete picture of the situation you are in.
Your primary goal should now be to resolve the debt.
Therefore, you must at all cost avoid using credit cards. Do not carry them with you and do not have them at hand.
It is better to keep them in a safe place, to avoid any temptation, and get used to paying everything in cash for the moment.
Prepare a plan of action:
First, you must write down on paper the total amount of net monthly income you receive, i.e. tax-free.
Next, your fixed expenses: Rent or mortgage payment, telephone, gas, electricity, schools, cable television, etc.
Now, you have to estimate other expenses, such as: supermarket, transportation, and so on.
With this, you will be able to see what expenses can be cut, for example, pay television, cell phones or the telephone line of the house, among other things. If your problem is very serious then you need to cut back on everything that possible and won’t impact day to day living.
Remember that in order to get out of debt problem as soon as possible, you must allocate as much money as possible for the debt payment.
Finally, one should subtract one’s expenses from one’s income to see how much money is available for the creditors. This amount should be enough to cover the minimum payment on all of your cards and an amount to make additional payments. Otherwise, it is very clear that you live outside your possibilities. So you must remedy this situation as soon as possible to avoid further problems.
Read more: Know your rights when facing debt collectors.
List and order:
Make a list of what you owe on the credit cards, as follows: Name of the Card, Total Balance (Debt), Interest Rate, Minimum Payment and Payment Date.
Then, sort them taking the criteria of putting first the one with the highest interest rate, and so on.
You should pay the minimum balance on all the cards, to avoid falling into arrears, and all the additional amount left for this purpose, you should assign it to the card that charges you the highest interest rate. This allows to pay the most expensive debt first.
What if you don’t have enough for the minimum?
If such a condition arise, then the problem is severe, which usually requires solutions that are usually very hard. What can be done in such cases, to implement the above plan, is:
Selling an asset: For example, car, or some family jewel.
Pawning is not an option in this case because it is usually a short-term loan, with high interest rates (sometimes similar to those charged by credit cards), and where you are given a fraction of the cost of an item that could be lost, if this loan can’t be repaid.
If you have savings, you will probably have to use them to repay a portion of your loans, since the interest rate on these loans is much higher than the rate you receive anywhere for your investments.
Or, perhaps get a second job that provides an additional source of income.
As a last resort, you may be able to get a loan from your family or the company where you work that will help you pay off your debts to financial institutions in full, so that you can keep only one loan at a much lower interest rate.