Are you one of the millions of Americans, which because of recent cutbacks, such as a salary reduction at your job--that you have had a difficult time paying your bills? Until now, you have been timely about meeting your financial obligations--whether they are to credit card companies, your mortgage lender, or to the company from which you recently purchased furniture. However, due to the recent decline in your wages, your financial life has become strained, and payments have become progressively later. In some cases, you have begun to miss payments. Your goal now is to avoid possible legal action--up to and including wage garnishments and a possible bankruptcy, which can adversely affect your
credit rating for ten years. It now behooves you to devise a plan to get out of debt. In order to be effective, any such plan towards the elimination of debt should be flexible. You need to review it regularly as your circumstances begin to change. However, these are guidelines that you may use as the basis of a plan to get out of debt.
Write a List
The first step toward an effective debt payment plan is to acknowledge all of your debt. Fold a blank piece of paper in half. On one side, record all of your sources of income. For instance, if you know that you net $750 every two weeks from your work in the local school district, place "School District: $1500 per month" on the left side of the paper. Do likewise with all of your other sources of income. Then on the opposite side, write out all of your monthly bills. Order is important; you should list your debts from smallest
to largest, paying the smallest bills first. This list would include credit card monthly minimums, student loans, and living expenses. Pay rent or mortgage first, before everything else. Then pay your utilities.
Examine Your List
Second, take a look at your list. If you see that your expenses exceed your income, begin brainstorming areas in which you can reduce expenditure. It may mean that you delay buying a new item of clothing you have wanted for years, or at least waiting until it is on sale for less than you would have to pay at the moment.
Communication the Key
Third, communicate with your creditors. Call them and honestly explain your situation to them. Speak to them in a calm, respectful manner. Let them know a specific amount you can pay them, and the date by which you can render your payment. Ask them for an agreement: Have them all send you a written record of your conversation on the phone. Make copies of it for your personal records. Most importantly, stick to your promise. This is an important part of your debt elimination plan--making sure you deliver on what you have said. If they cannot trust you to keep your word, then they will not work with you, and you may have serious problems with those companies in the future.
Fourth, if you find that you have money left over, pay off your minimum balances on any credit cards, then use any money left over to pay on the bill that carries your highest interest rate. If you are serious about your debt payment plan, you will sacrifice eating out or going to the movies. Also, call your cable company and ask for the smallest cable plan, so that you may pay just enough to keep your television running so that you can continue to stay abreast of the news or weather. Or you may decide to sacrifice the TV altogether for awhile.
Monitor Credit Reports
Fifth, keep track of your credit report. By law, a first time credit report from all three of the major credit bureaus, Experian, Transunion, and Equifax, are free each year. Do not allow yourself to be fooled by websites that claim to offer free credit reports as their reports may not be all that free. The practice of most of these sites is to offer you a two-week trial. They will require your credit or debit card information before allowing you to move forward. Instead, go to annualcreditreport.com, the only government-endorsed website.
Hold the three bureaus accountable. If you know you have paid a creditor off in full, ask for a receipt from the company, make three copies of the statement, and fax or send it to each of the bureaus. Order updated copies regularly. Although it may cost you some money, it will give an honest picture of your true progress in your plan to get out of debt.
Avoiding Future Struggles
Any plan towards the elimination of debt is incomplete if it does not include a strategy to get out of debt and to remain debt-free. As veteran banker Miriam Caldwell points out, you should set up an emergency savings account, with at least $1,000 in it. This would be used only for true emergencies, such as a breakdown of your chief mode of transportation to and from work, or a medical emergency. Do not use it to cover areas in which you've overspent. The idea of learning from a crisis is not repeating the same mistakes that brought you to that place to begin with.
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