Want to be in the driver’s seat? CONTINUED....
Stop using your credit. It makes little sense to scrape together money for paying down your debt and then run out and rack up new charges. Freeze the cards, throw them behind the fridge or bury them. Remove the temptation.
Next, take stock of your debt situation. This may take an hour or three, but having a written plan means you are way more likely to get to where you want to be. Write down all the places to which you owe money and how much you owe. List what you owe by interest rate with the most expensive (the highest rate) at the top of the list. This is the order in which you’ll pay off your debt to save on interest costs.
Calculate the minimum payment on each debt. That’s what you HAVE to pay to keep current so you don’t bruise your credit history. Write the minimum payments beside each debt and add ‘em up.
Making your minimum payments on all your debt isn’t enough to dig you out of the hole. You have to come up with more money, throwing everything else you have at your most expensive debt. As that’s paid off, move to your next most expensive debt. Each time you move down the list, you’ll snowball, adding the payment you were making to the debt you’ve just paid off to the next most expensive that you’re about to tackle.
One of the tried-and-true ways of reducing the pressure your debt may be creating on your budget is to consolidate: pile it all in one place at a reasonable rate of interest. Consolidations give you breathing room. Consolidations cut your interest costs. Well, they’re supposed to.
Increasingly Canadians are being offered consolidation loans at ten percent or more above prime. Those higher-than-we’re-used-to rates are a reflection of two things: lenders mistrusting their borrowers’ ability (or is it “willingness”?) to keep their commitments, and the tighter money market. But consolidation may still work in your favour if you’re swapping a ridiculously high interest rate on a rapacious credit card for whatever lower rate you can negotiate. After all, every penny you don’t have to spend in interest is a penny that can go towards paying down your debt.
If you add up your debt and get a queasy feeling in your stomach because you can’t believe how much you owe, you’re not alone. Time to make a budget. If you don’t know where your money is going, you don’t stand a hope in hell of getting to Debt Free.
Finding the money to make your debt history once and for all probably means trimming your spending. Go over your budget with a paring knife and trim out all the non-essentials that are sucking away your money. How much did you come up with? Do it again. Now how much do you have? Do it again. And again. You want that budget to be so tight it squeaks. You’re going to add whatever you’ve squeezed out of your budget to the payment on your most expensive debt. So if you managed to trim another $300 from your budget, you add that $300 to the payment on the first debt on your list.
Every penny counts. Start carrying a notebook around with you and whenever you save money on something write it in your notebook. When you get home that night, make a payment of however much you’ve saved that day against the debt that’s at the top of your list. The faster you make a payment, the quicker you turn off the interest clock. Now you’ve put what you saved to good use as opposed to leaving it in your wallet where you can spend it on something else.
Have you heard, less is the new more! Go through your home room by room and choose two things you can live without. Have a yard sale, list things on craigslist or eBay, or sell your stuff through a consignment shop. You might not get a lot for whatever you’re selling, but whatever you get is money you won’t have to pay interest on. Apply that money to the debt at the top of your list.
If after all your trimming, selling, planning, and budgeting, you don’t have enough money to pay down your debt and eat, you’ll have some tough decisions to make: Will you find way to make more money so you can pay off your debt? Or will you take a trip to a bankruptcy trustee and join the legions of Canadians who are turning to the courts for help dealing with their overwhelming debt?
The reason bankruptcy exists is because there’s just no other way but to cut your losses and start fresh. With unemployment at record highs, the economy in the dumper, and people carrying the highest levels of consumer debt ever, bankruptcy may be the only way to move forward.
The key to moving through bankruptcy smoothly is to get yourself to someone who is smart, capable, efficient, and committed to helping you. Trustees are a dime a dozen these days and, as with everything else, all trustees aren’t good at what they do. So make sure you find someone reputable with whom to deal.
Declaring bankruptcy is no walk in the park. With crappy credit histories, you’ll see frost in hell before lenders will let you borrow at anything but the most exorbitant rates. That’s one of the penalties for going bankrupt. But bankruptcy is also not the end of the world. If you’re so buried in debt that you can’t keep up with payments and keep a roof over your head, then navel gazing and questioning the “ethics” isn’t going to get you to a place where you can take control of your life. A plan for how to fix the mess and how not to do it again EVER will.
Times are tough. Just ask the record number of unemployed and all the folks who are up to their eyeballs in debt. But wishing it weren’t so isn’t going to do you a bit of good.
Know that there is a way out. It won’t be easy. But it’s doable. And as long as you learn the lesson, maybe the pain, embarrassment and frustration will have been worth it.
You DO know what the lesson is don’t you?