It seems we are on the other side of the recession, or at least on our way out, but that doesn't mean we're not still feeling the pain from it. If you lost your job or your house or had some other financial emergency during the recession, you might currently be trying to dig yourself out of a huge hole of debt, much like the rest of the country. While it might seem like an insurmountable task, if you don't panic and follow these steps, you should be able to get yourself back on the track of financial health.
This is the most important step in getting your finances back on track. You need to figure out how much your in debt and which bills need to be paid first in order to more efficiently get out of debt. Make sure that the bills that are the most delinquent get paid first. Then figure out which bills are charging you the most in late fees, and pay those off next. Getting rid of any bills that are charging you extra for your debt should be the priority to get paid off.
While organizing your debt, also organize your finances. Figure out what you are wasting money on or what you might be able to cut out of your life. Are you still paying for that gym membership from five years ago that you never use? Can you cut down on your car insurance payments? Do you need to buy name-brand groceries? Every little bit will help. If you need help getting organized, try personal finance organization sites like Mint, Manilla or Personal Capital. They will give you a better idea of what you are spending money on and what you might be able to cut out of your life.
Get Rid of Your Debt
Easier said than done, right? There are ways to bring down your debt without severely cutting into your income. First, pay off the balances with the highest interest rates. If you keep collecting high interest on your debt, you are never going to be able to dig out of the hole. Also, if you are over the limit on any of your credit cards, try paying those off next to avoid any over-limit fees that you might be racking up. Avoiding fees and interest is always a good way to get ahead of debt.
You can also get in touch with your credit card lenders to see if there is a cheaper way to pay down your balance, especially if you are way over your limit and are having trouble paying it down. Many credit card lenders, in an effort to get their money back, will negotiate deals with cardholders in order to more easily pay down their balance. It could be they will stop charging you fees if you agree to pay more each month, or they may knock off a few hundred dollars or more from the debt if you agree to pay it off in one lump sum. Whatever deal they offer you, just make sure that they will be reporting it to the credit bureaus as "paying as agreed," otherwise your credit score could take a hit. If you need to get a small loan to help you, try Prosper, which lends you money from other people instead of a bank.
Survey the Damages
Speaking of credit scores, the next thing to do is check your credit reports and scores to see what damage your debt may have caused them. If you only want to survey the damage and make the necessary changes to raise your score, you can apply for your free credit reports through the government; every person gets access to all three of their reports once a year, but this doesn't include credit scores. If you would rather keep track of the improvements you are making to your scores, you can sign up for a credit report monitoring service which will keep track of all three of your scores.
If you need to rebuild your credit score, there are a few things you can do. First, if your score is really bad and all of your credit cards have been closed, try signing up for a secured credit card in order to build your credit back up. Secured credit cards are specifically for people looking to build their credit and most report to all three credit bureaus monthly. Another last-ditch step would be to sign up for a credit repair service. The best of these services will work with the credit card lenders to raise your credit score through goodwill outreach or loopholes in credit law. Just be careful, although many of these services offer a guarantee, they only guarantee to raise your score, they never say by how much.
Plan for the Future
It might seem like you will never get out of the hole, but you will, and it is time to start planning for that day. When you are getting organized, try budgeting in a little money to put aside each month for savings, even if it's only $5. If you have a lot of credit card debt, try applying for a balance transfer card (if you can qualify) that has a 0 percent introductory APR and also rewards, so that you are not being charged extra income on your debt and you can get some cash back to help you pay it off. Also, make the most of your income by signing up for your employers 401K program. You can transfer a percentage of your salary to your 401(k) pre-taxes, which can actually save you some money on taxes. If your employer doesn't offer a 401(k) program, you can also sign up for an individual IRA and do the same pre-tax transfer of your paycheck.
It may seem overwhelming to be clawing out from under a financial crisis, but if you are organized and know how and when to spend your money, it is not impossible to back into the black before you know it.
- Rachel McMahon, Simple. Thrifty. Living.