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Digging out of Debt

Excessive consumer debt can be a prison, holding you captive to past financial decisions and overspending. You need to pay off your debts to free up money for your current lifestyle and future plans and dreams. In addition to living an all-around frugal lifestyle, the following steps help you get debt-free.

Acknowledge the problem

The most important step toward digging your way out of debt is acknowledging the problem and realizing you need to actively do something about it.

If any of the following statements are true in your life, consumer debt is a problem for you. Make paying off your debt a high priority or you may face a major debt-related problem such as utility shut-off notices or even a personal bankruptcy in the not-so-distant future.

You have little or no savings and are at your limit on most of your credit cards.

You juggle bills each month, deciding which ones to pay and which need to wait until the next payday, even if it means paying after the bill's due date and incurring subsequent late fees

You've taken at least one cash advance from a credit card account or other line of credit to make payments on other debts.

Your debt load (including car payments but not including your mortgage) exceeds 20 percent of your income. Most budgets can reasonably handle a 10-15 percent debt load, but more than that is excessive. If you use credit cards to finance your lifestyle, you're living beyond your means. It's time to remedy the situation.

Cut the cards

Identifying the problem is the first step to digging out of debt. The second step is often difficult for hard-core credit card junkies: cut up your credit cards. Yep, pull out the scissors and start snipping.

Some credit providers can't officially close the account until you've paid in full, but consider it closed to your usage. Do not, under any circumstances, use a credit card until your debts are paid in full. If you're deeply in debt, this can take several years. But after you're out from under the burden of excessive debt, the relief you experience more than makes up for the inconvenience of going without credit for a long stretch of time.

Set a frugal budget and live within it

When planning your budget, be realistic about what you need to spend in each category, but don't be overly generous with yourself either. You need to cinch in your money belt if you're serious about repaying your debts so that you have the money to set a budget for your debt-repayment plan. The frugal tips throughout this site can help you get in shape to pay off those debts as quickly as possible.

Contact year creditors

Communicate directly with your creditors and explain to them that you're having problems meeting your payments. Tell them about your frugal budget and ask whether they'd be willing to accept slightly lower payments for a period of time. Many creditors are more than happy to lower monthly payments if that prevents a customer from filing bankruptcy - a smaller payment is better than no payment at all.

Some creditors, though, would rather play hardball and force you into bankruptcy before accepting a lower payment each month. If you have difficult creditors, contact a credit counseling agency. These agencies have experience communicating directly with creditors and working out solutions to debt repayment problems. If you search online, you find a large number of credit counseling agencies, but I strongly recommend beginning your search with the National Foundation for Credit Counseling at 1-800-388-2227 or www.nfcc.org for help locating a counseling agency near you. This network of credit counseling agencies is nonprofit and doesn't have a vested interest in making money off the debt-ridden consumer.

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