As a financial counselor I interact with the debt stricken people to help them get out of debt. While dealing with these financially crippled people I met Kevin. He shared his personal experience of incurring large amount of debt and how he successfully managed to regain his financial freedom. There couldn’t have been a better place than mygrants.us to share this story.
Kevin had multiple credit cards and in his initial days he was responsible toward paying off his bills on time. When he made timely payment without a single default it helped to boost his confidence, and so he started using the cards exhaustively.
He used to lead a lavish lifestyle to impress his friends and neighbors. In order to maintain a flamboyant lifestyle he kept on borrowing loans from various financial institutions like Juniper, Bank of America, Chase, Capital one and Advanta. But Kevin was one of the unfortunates to become a victim of unemployment due to sudden economic recession.
He was crushed under the burden of debt as he owed total debt of$64522.65. Kevin failed to manage the repayment terms and ultimately his financial situation just got worse. Initially, he thought of solving his financial problem successfully without seeking help from a professional. But he failed to overcome his growing debt and was left with no other option than hiring the services of a debt settlement firm. Kevin managed to settle his account within one and a half year and all his accounts were settled for less than 50% and now leading a debt free life.
If you are in a similar situation then this step by step way can help you eliminate your debt. Here are some of the effective ways that you can employ to eradicate your debt:
1. Prepare a Budget:
Calculate your total monthly income as it will help you estimate the amount that you can put forward towards your debts. Budgeting helps to keep a track of your expenses and ensure that you design a budget plan according to your financial situation. You will develop a habit of analyzing your expenses therefore it will help to restrain yourself from spending too much. If you maintain a stringent budget plan then it will be easier for you to put some extra money towards your minimum payment every month. But you need to be aware that making minimum payment can extend the repayment plan and you might end up paying more than you originally owed.
2. Negotiate With The Creditors:
Write down the total amount of debt you owe along with the interest rate on each debt. Now you can approach your creditors to negotiate a settlement so that the outstanding balance is affordable for you to pay off. If your creditors reject the settlement offer you can threaten him of filing bankruptcy. Generally, in this situation the creditors often give their consent for debt settlement. They lower the interest rate along with the penalty charges on the principal balance to make the outstanding balance affordable for the debtors.
3. Make a List of High Interest Debts:
The department store cards are inevitably the main cause for people falling behind payment because of the high interest rates on these cards. You can prepare a list of the debts in descending order of interest rate so that you can focus on paying your high interest debts first. In the mean time, make only minimum payment on all your debts, except your chosen highest interest debt.
4. Avoid Borrowing and Pay on Time:
Take extra effort to pay off the debts and continue your payment until your first debt on the list is paid off. Switch your payment to the next debt on the list and as you pay off your credit card debt cut up the cards. Make sure you always pay on time to evade late fee and penalty charges. Carrying multiple credit cards can be one of the reasons for this catastrophic financial situation. Therefore, it will be a wise decision to reduce the number of credit cards. Avoid taking out more loans when you are working on paying off your debts.
5. Create an Emergency Fund:
The final and crucial step is to start an emergency fund. Make sure that you allot a small portion of your income for this emergency fund. Deposit a stipulated amount each month towards your savings account. You can also set up a regular automatic deposit from your checking account to this emergency fund savings account. If you have an emergency fund then you do not need to skip debt payments to pay for the unexpected expenses.
You can avoid financially distressed situation if you remember the above mentioned steps that will help you attain financial independence.