Getting Out of Debt - Shovels Up, Girls!I know a lot of single moms who think their credit worthiness and debt load doesn't matter. They figure they'll eventually get remarried and their husband can take care of all that stuff. Stop the presses...what, do we live in the '50's? These days, sisters are doin' it for themselves. Just because you're single mom doesn't mean you don't have to worry about managing your money or planning for your own future. I'm getting ahead of myself. Before you can plan for your future (and your kids') you've got to start with getting out of debt. So, I'm figuring that since you found your way to this page, you must have a pile of debt you're not sure what to do with. Maybe you went overboard on Christmas last year. Maybe you got stuck with the debt from the divorce, or maybe your ex didn't come through on his promise or obligation to pay things for the kids, so you're stuck holding the bag. However you got here, I pretty much know how it feels. Take a minute to vent- get it out. Punch a pillow or write down how you feel. After that, no more feeling sorry for yourself over your debt. Getting out of debt is about taking action. Let's get to work. Start by imagining: How would it feel to get your paycheck and not have to pay debts with it? What would you, could you do with your money? Buy your own house? Plan to retire to a beach somewhere, send your kids to college, help others, change the world...you get the idea. Set out on this journey thinking about your ultimate destination- your end goal. This is the glimmer of hope that will get you through. Getting out of debt is possible when you follow these six steps. I'm not going to say it's easy, or that you'll be debt free overnight, but you can do it.
Step One – Assess the SituationI know it’s tempting to stick your head in the sand, especially when you're in debt up to your eyeballs. This first step can be the hardest, but it is crucial to your success. Getting out of debt is hard work, but you can do it. Get out all your statements and list your debts with the current balance, minimum payment, and interest rates.Don't stop at credit card debt. Add in any medical bills, student loans and car loans you may have. To find your turning point, try to calculate all the interest and fees you will pay on one debt/credit card by the time you'd pay it off with minimum payments. Sometimes your annual statement will do this for you. Then go back and think what you originally bought. Was that trip, that car, those shoes, that dinner really worth another $100, $500, $1,000? No, I’m sure it wasn’t. You wouldn’t have bought it if you knew how much you would really pay for it. I know- you may have amassed some of this debt through no fault of your own, for reasons previously mentioned. Again, no need to beat yourself (or your ex) up over it, what's done is done. Work past any anger you might be harboring, and get on with business.
Step Two – Stop The BleedingGetting out of debt requires you to stop taking on new debts. You can do this. Once you start bailing water out of your boat, you have to make sure to stop up any leaks letting water back in, ya dig?Start by setting aside a small emergency fund of $500-$1000. This is not for budget overages; only true emergencies that you have to pay for will come out of this fund instead of relying on credit cards. So, to clarify: Christmas is not an emergency. Wondering how you're going to come up with that? Take any windfall you can get and stash it in a savings account. Tax returns, bonuses, extra payments from your ex, money from stuff you sold all work well. Then determine a painless amount to automatically deposit in savings every time you get a paycheck. I know times are tight, but save something, anything to get started. Step Three – Examine Your IncomeYou need to know exactly how much you bring home every month, and how much you can sock away toward your debt. For more help figuring this out, go to Tips on Budgeting . Now get creative! How can you increase that number? Can you get another job, side job, paper route, anything? What can you sell? Don’t let your possessions drag you down like an anchor. You can buy new luxury items when you are debt free. Lighten the load and relieve some of the weight of debt off your shoulders.Have a garage sale, or get on ebay and sell, sell, SELL! Get rid of things your kids have outgrown at second-hand stores, take the clothes you don't wear to a consignment shop. Any money you can scrape together will propel you towards getting out of debt faster. Step Four – Trim ExpensesThis may be the most effective way to find more money for your debt plan. List your living expenses other than your debt payments (home, utilities, cable/internet, food, entertainment, cell phone, car payment). Take a hard look at where your money goes.Are all the expenses necessary? Can they be reduced? In the short term, you may find it difficult or impossible to change your expenses. In the short run, most of them can and probably should be changed. Just remind yourself getting out of debt is worth the effort. Could you sell your car and drive something cheaper for a while? Cut down on eating out; pack a lunch or cook at home instead. The kids will continue to grow, but you can shop the sales and save there. Can you live without cable tv? We did it for two years, and loved it (waaay more family time). Price shop insurance and cell phone rates. Brew your own coffee instead of the daily trip to Starbucks. Step Five – PrioritizeTake that list you made in step one, and put your debts in the order you'll pay them off. One of the best ways to order your debts is to start with the smallest, then work up to the largest. The beauty of this plan is that you feel a sense of accomplishment right away as you pay off the little guys. Not to mention, you're not going to get collection notices and ruin your credit over trivial amounts of money.One other thing to consider: federal student loans and back income tax carry the highest price for delinquency. You may want to list them sooner to avoid having them paid for you. These are the only ones that can garnish your wages without taking you to court to get a judgment first. If you have these kinds of debts, getting out of debt should be your #1 priority. We're talking about paying off debts here, and if you are struggling to pay these debts, keep in mind there are ways to negotiate! Don't just crawl into a hole and hope they go away. Call your student loan servicer today. There are ways to have your payment reduced, or even deferred until later, if you are experiencing a hardship. Same goes for credit cards. My credit card interest rate went up, (through no fault of my own) and I called to complain. I was cordial, and explained that I really needed help in order to keep up on the payments and pay off the balance. I had to call a few times, but finally got the company to reduce the rate from 29.99% to 4.99%! Sometimes, you just have to be persistent (and nice).
Step Six – Set The Plan Into MotionHere's the lowdown: now that you've tightened up your budget as much as possible, found additional income (if possible), and organized your debts, you can start actually getting out of debt. Figure out how much extra money you can pay toward your first debt on your list, and add that to the minimum payment. Once that's paid off, take that total amount and add it to the minimum on the next debt, and so on and so on till you're done.Once you've determined the monthly payments you'll make on your debts, set those amounts in your bank's bill pay program and leave it. Make sure you set each payment to reach the creditor before it's due to avoid late fees. You can even use a payment calculator online to figure out when debts will be paid off. Getting out of debt shouldn't consume you. Now you don't have to sit around worrying about paying for things, and your pretty head can move on to bigger and better things.
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