As a college student, I’ve unfortunately accumulated a bit in student loans. I’ve tried to keep them to a minimum, but sometimes I just needed the extra to help pay for books or to cover whatever wasn’t covered by grants and scholarship money. I’ve also tried to keep my other spending habits in check and actually don’t have a credit card that isn’t attached to a debit card/bank account. Those are just two ways that I’m trying to avoid getting into debt, but how else can someone go about getting and staying out of debt? It’s one thing to get out of it, and it’s another to stay out of it. But, with both you’re hopefully setting yourself up for financial success.
Debt can help us get the things we need and want in life. But if we’re not careful, it can spiral out of control and take over our lives. Staying on top of our debts is crucial if we want to avoid becoming yet another sordid credit statistic.
If we practice good debt management from the start, we’re less likely to get in trouble in the first place. And if we do have unforeseen problems, taking action quickly can keep them from getting any worse. Here are some simple things you can do to keep your debt under control.
* Stay away from credit cards with annual fees. There are plenty of them available that do not charge these fees, and you can usually get them even if you have little or no credit history.
* Avoid high-interest debt. When you’re first starting to build up your credit, you might have to settle for a credit card with an interest rate that’s not so good. But as soon as you build up a good payment history of six months or so, start looking for a card with a better rate. When you find one, stop using that high-interest card (but don’t close the account, because having available credit is good for your credit score).
* Pay your balance in full each and every month. If an emergency comes up and you can’t pay the entire balance, make certain that you pay it off within two or three months at the most. This will save you money in interest and keep you from running up a high balance.
* Build up some savings so that you don’t have to rely on credit. Having an emergency fund that equals at least three months’ income is the best way to keep yourself afloat in the event of job loss or some other sort of financial disaster. Depending on credit to get you through such situations sets you up for more trouble down the road.
* Instead of charging the things you want, save up the money to buy them. Most of our wants can wait until we are able to pay cash for them. And the habit of charging non-necessities (unless you pay the balance in full right away) can be a very dangerous one.
* If you find that you’re not going to be able to make a payment, talk to the creditor immediately. Some will allow you to skip a payment with no penalty if you’re experiencing a temporary setback. Just don’t make this a habit, because interest will continue to accumulate even though no payment is required.
If you have existing issues with debt and want to start shrinking some of it, here are a few options to consider. There is no magic bullet that will shrink your debt before your eyes. But there are ways to get rid of it much faster. Some of these options will hurt your credit more than others, but all will eventually leave you debt-free.
Snowball Your Debt
Sometimes it feels like our debts are a snowball rolling down a hill, gathering more and more snow until it is more like an avalanche. But what if you could do the same thing with your debt payments? If you have several debts to contend with, you can.
It works like this: You start by making the minimum payment on all of your debts except for one, which should be the one with the highest interest. You put as much money as you can scrape together each month toward that debt until it is paid in full. Then you move on to the debt with the next highest interest, and pay the minimum payment on it plus the amount you were paying toward the debt you just paid off. Keep going until all of your debts are paid.
Give Your Debt a Workout
If you’re having trouble keeping up with your payments, you may have to negotiate with your creditors in order to get out of debt. Many will offer a debt workout plan that lowers your interest rate and minimum payment in order to increase their chances of getting paid in full. You can try negotiating directly with the creditor, or you can go through a credit counseling agency. Workout plans can save you lots of money in interest and get your debt paid off years sooner.
Seek a Settlement
If you’re in serious trouble with a particular creditor, a settlement might be the way to go. It will impact your credit, but it will also get you out of debt quickly. You simply negotiate a lower balance with the creditor in question, pay a lump sum, and call it even. Some creditors will let you break that lump sum into two or three payments to make it more manageable.
Not all creditors are willing to settle, but it’s worth a try. Hiring a lawyer that specializes in debt settlement could improve your chances.
Filing bankruptcy is a last resort, but if you’re in way over your head with no hope of digging out, it makes sense. Bankruptcy will remain on your credit report for seven years, and on public record forever. But it can get you out of debt and give you a new lease on life. If no other option has provided relief, it’s certainly something to consider.
Getting and staying out of debt doesn’t have to be a stressful or long process. By taking small steps to manage your existing debt and to shrink it until it’s gone, you can get out of debt and stay debt free for the long term.
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