Today is Part 2 of the Ask The Experts Series on Getting out of Debt. In today’s post, we continue with the question:
There is a lot of information out there on personal finance as a whole, especially the topic of getting out of debt. What is your best advice on getting out of debt? What tools do you use and recommend to accomplish this?
You’ll hear from 4 personal finance bloggers today and in case you missed it, be sure and go back to yesterday’s post to see Part 1 of the Ask The Experts Series on Getting out of Debt.
Name: Carrie Smith
Website: Careful Cents
Money is a tool, not an obstacle, so treat it like one. Accumulating debt didn’t happen overnight, and correcting the problem will take time. The biggest tool I use with my finances is be in control of the emotions. Impulse buying, investing or saving should be balanced with smart, thoughtful and educated decisions.
How I keep myself educated is by is finding inspiration. Sometimes it’s a blog, a book, a financial show or even a podcast. It’s easy to get discouraged or lose sight of the goal, but it’s important to find things that keep you inspired and motivated. Throughout your personal finance journey, learn to be content. Whatever your situation is, whatever mistakes you’ve made, you should have joy in the journey.
Website: Girls Just Wanna Have Funds
This is a loaded question that can certainly be seen from many angles and viewed through varied lenses.
In order to get out of debt, I think it’s best to understand why you got into debt in the first place while honing the discipline needed to dig yourself out and stay out. The first reason stems from my background in psychology where I come from the school of thought that we first have to understand why we do something in order to change it. Learning and then unlearning old money habits can be difficult so it’s takes an appreciable amount of time to do this and do it effectively. This lends itself to cultivating the discipline is necessary to make the decision and stick with it. So getting out of debt will require much insight into spending habits while cultivating new money habits which is often underestimated.
Once you’ve achieved understanding the root of old money habits and cultivating the discipline needed to get out of debt, then you’ll need to develop a game plan.
What’s Your Debt Reduction Plan?
What system will you use? The debt snowball method is where you pay down the smallest debts to the largest thereby building momentum to the largest with the increased availability of cash from the smaller debts. Or will you start little by little and pay everything off in chunks? Your plan is important as it develops a framework through which you will operate.
Which Tools Will Help You Work The Plan?
If you’re visual and “techie” like me then you’ll want to invest some time in aggregating all of your financial accounts into a system like Mint or Yodlee. There you can list all of your financial accounts in one place and develop a plan to pay down debt, save for an emergency fund while tracking daily and monthly transactions. I find it easier to see everything in one place while watching my numbers go down (debt) while savings go up (emergency fund)
You may decide that a spreadsheet or notebook is best for you and this is fine as well. Just use something that will help you track your progress because this helps build motivation. Surprisingly, while I love using online tools, my favorite has been updating a spreadsheet with my totals. Manually changing the numbers on my accounts has given the motivation that an online tool doesn’t.
Action Items To Promote Insight and Discipline Needed to Start This Process:
- Identify your “heart,” where you spend most of your money.
- Decide to change your heart from reckless spending to whatever financial goal you have in mind.
- Engage in serious introspection about why you spend the way you do. Are there other psychological needs that spending temporarily meets?
- Divorce yourself from the emotions which enable you to rationalize and accept destructive spending habits.
The rest is history which starts with a decision-made by you!
Name: Suzanne Cramer
Website: A Straight Talk on Debt
If you find yourself drowning in debt, you aren’t alone. Millions of Americans are struggling right along with you and have been in your shoes. Unfortunately, many of us are overwhelmed and don’t know where to start. Filing bankruptcy may seem like the easiest way to become debt free but the reality is it is probably the most difficult and damaging way to go. Knowing your options and researching what will work for you is the first step to debt freedom.
Consider going it alone—with a plan in place…
You have some unsecured debt; credit cards, medical bills, maybe even a few collection accounts, but you are able to keep up with the payments. You may be able to manage your situation on your own. Debt Payment Pro is a FREE tool that can help you pay down your debt. Enter simple information about your debts. Based on your debts Debt Payment Pro will calculate your possible savings. Then follow your personalized repayment schedule to pay off your debt more quickly and save on interest. It can become easy to send just the minimums and not reallocate payments to other creditors. This approach will require discipline and close attention to your payments.
Get some help—lower your interest rates and pay off debt in 3-5 years.
Maybe you are realizing your debt is becoming overwhelming and you can’t keep up with the minimums or have fallen behind. As a result your creditors have increased your interest rates and the likelihood of you continuing to manage your debt on your own has become too much for you to handle. You may want to consider entering a Debt Management Plan. Debt Management Plans, which are often called DMPs, are plans that allow debt relief providers to work directly with creditors to negotiate new terms for the repayment of your debt such as, reduced interest rates, lower monthly payments, and waived fees such as late fees and over the limit fees. With a DMP you will make one payment to a debt relief provider who will then disperse the funds to your creditors each month. A debt management plan is a great option for those who just need better term to repay 100% of their debt.
Settle your debt for less than what you owe—avoid bankruptcy.
If you find yourself scraping to just pay the essential rent, food, and utilities and have no money left to pay your creditors but want to avoid filing bankruptcy, you may want to consider a Debt Settlement Plan. Debt Settlement is an attractive alternative to bankruptcy for those who want to pay back at least a portion of their debt, but cannot afford the Debt Management Plan payment, and may have stopped paying their unsecured creditors. With Debt Settlement, you make monthly deposits to a Settlement deposit account in an amount you can afford. You do not make monthly payments to your creditors, and your provider works to negotiate with your creditors for a less-than-full repayment. When settlements are reached with creditors, settlement payments are paid from the Settlement deposit account. There are definitely pros and cons to using Debt Settlement to pay off your debt so it is important to understand what to expect.
If you decide to seek help make sure the provider is on the up and up by asking the important questions.
Name: Gary Foreman
Website: The Dollar Stretcher
Getting out of debt requires a variety of skills and tools, but I’d say that 3 are the foundation for a successful attempt to get out of debt.
First, don’t expect immediate results. It will probably take you as long to dig out of debt as it took you to get into it. If you’ve been spending more than you’re making for 5 years don’t expect to get out of debt in 1. You’ll only be disappointed when a year passes and you still have a long way to go. Being realistic helps you prepare for a long haul. That’s the type of mindset that you need to see your goal accomplished.
Second, it’s essential to have a plan. “I’m going to pay down my debts” is not a plan. Knowing which debt you’ll attack first and how much you’ll be applying to that debt each month is important. Not only will that eliminate indecisiveness, but it will also allow you to track your progress against expected results.
Finally, don’t forget to reward yourself as you achieve smaller goals along the way. Treat yourself to a nice dinner when you’ve paid off the MasterCard or your auto loan. Celebrate the victories along the way. Those celebrations are an important motivator to keep you on the path to final victory over debt!
Stay tuned to tomorrows post for Part 3 of the Ask the Experts Series on Getting out of Debt.