Personal Finance

Getting Out of Debt: Ways to Pay It Off

• Know What You Owe
  This might sound simple but, how many people are making payments but 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 paymets column and then the total of what you owe. Wow! That seems like a allot, doesn't it. This is just the first step. Now decide which one will be paid off first: either the one with the highest interest or the one you owe the most to, just choose one. Put a number one by it 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.

• 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 turn it over, 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 sissors in the house and cut up that plastic. Now keep going, until all your cards are Cancled and cut up. Now make a promis 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, 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 if its expensive to fill up the car and pay for parking. These are just a few ideas and I'm sure you can come up with allot more. Keeping these habits only make things worse. Now that you found a few extra dollars, you send them to that card, highest dollar or interest, to get it paid off a little bit sooner. When that card if paid off, use all the money to pay off the next card and so forth, until all your debts are paid off.

• Use Your Savings Account
  I don't know of any savings account tha pays an interest rate that keeps up with inflation or high enough to warrant keeping a large sum in such an account. It just doesn't make sense. The best thing to do is use that money just laying around not earning much to help pay off your debt. The higher the interest on your debt, the more attractive repayment become 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.

• Save Your Pocket Change
  Everyday put all your pocket change into a bowl or jar. At end of a Month, take all the change to the bank and make a deposit. Use this extra deposit to pay down your highest bill or pay the credit card with the highest interest. Once your bills are all paid off, use this as way to save for 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 around $25 a week which comes to $1200 to $1300 a year. I bet you never thought you had that kind of money, but you have to keep saving.

• Sell Off Stuff
  Go through your house and collect all those things you do not use, do not want or no longer need. Stop hanging onto to stuff and get rid of it. Have a garage sale or even more than one and use every dime you make to lower your debt. It is better to clean up your house, make room and have less clutter than staying in debt. What you do not sell, give to charity and use that to lower your taxes in hope of getting back a check, which is then used against your debt.

• Get A Part-Time Job
  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 hobbie into a part-time cash maker. Lanscape a few time in the summer for cash. Shovel snow to earn cash. Look in the paper for a part-time job to earn the cash 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. Check the yellow pages in your area for a cedit counselor or people who offer education and assistance. Some organizations will help by taking on your bill paying for a fee. These groups help you figure out what you owe and make arrangments 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 undissaplined 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 and learn to invest it with a goal: education, retirement, vacation, ect.

• Move Your Balances to a Lower-Interest Card
  Ok, I said you shoudn't get another card but, if all your cards are over 15% interest then it may be best to get a card with a lower interest rate to pay off the card with the highest interest. 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 at that time. 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 bankrupcy.

• 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 youv'e 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 Family and Friends
  Perhaps your family or friends could help through a loan. Who else knows, trusts and loves you as they do? Chances are you'll get a very favorable interest rate. 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.

• 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% loan for a 9% loan. Second, most homeowners itemize on their income tax returns and HEL interest under most circumstances is a deductible item. The danger here is falling into the trap many people do. They get a HEL, pay off existing debt, and then ring up the charges on the credit cards all over again. Now they have the HEL to repay on top of the credit cards. The hole just got much, much deeper. Use the HEL to pay off your cards and then keep them paid off until the HEL is repaid.

• Borrow From Your 401(k)
  Do you participate in a 401(k) qualified 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, 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 the 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 employment 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 to you. The tax man will tax you on that amount at ordinary rates. And if you're under the age of 59, you will also be assessed an additional 10% excise tax 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.

• 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 insurrace 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 theyll 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 do it for you.

• Only As A Last Resort, 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 available course of action. Nevertheless, be aware there are significant drawbacks to using this avenue. Your credit record will contain this information for 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.