Steps
- Build an emergency fund. Many people recommend three to six months of expenses. But even if you can only save a couple of hundred dollars, it will keep you from going right back into debt when your car breaks down or you fall and break your arm.
- Don't go into any more debt. Yes, you need to have a credit card for many practical reasons. But you only need one. Choose the one that has the lowest, fixed interest rate and keep it. Don't close your other cards because that might negatively affect your credit standing, but do cut them up or hide them in a drawer. Do not use any of them except in emergency that you cannot cover with your emergency fund.
- Make a budget and stick to it. A budget is a basic list of all the money that comes in and out of your home each month.
- Read your bank statements. If this is the first time you ve had to make a personal budget, you may have trouble figuring out your monthly expenses. By looking at your bank statements and credit card statements from the past few months, you can get an idea of your average monthly spending. A second, but more tedious way is taking a pencil and paper with you everywhere you go for a two week period, to copy down all purchases made.
- Reduce your expenses. Once you know how much you spend each month, you can figure out ways to reduce your expenses. Good ways of doing this are cutting your food bill by purchasing sale and name brand items, taking the bus or carpooling, and making your own coffee instead of getting it at the local coffee shop. Visit garage sales and read the want ads. Sometimes people sell clothes with tags still on them, or exercise equipment that's hardly been used. As you are able to save some money each month, start using that money to pay off your debts.
- Delay expenses. Maybe spring is here and you want some new pants -- if you wait three or four weeks, you can buy them on clearance. Maybe your dryer broke. Hang your clothes on lines in the basement or outside for a few months. The longer you wait to buy something new, the better position you will be in when you finally make your purchase. You don't have to sacrifice forever, but try to make do. If somehting's not broken but it's a little ugly or beat up, see how long you can tolerate it.
- Pay any late bills right away. Late fees and overlimit fees are expensive, and if your credit standing drops, some banks raise the interest rate you pay.
- Next, pay the bill with the highest interest rate. This is called "Laddering". Pay a little extra every month. Even if it's $50. Even if it's $10. But make it your goal to put as much money as you can afford toward paying off that bill. Alternately, you can use a "Reverse Laddering" approach, where you pay your bill with the lowest balance first, then the next lowest balance, and so on. This frees up more cash in hand to start chipping down the higher balance debts you have. This method is effective because instead of paying small chunks of money toward those high interest bills, you can throw large chunks of money at them, reducing the amount of time needed to pay them off. Also, your attitude will be better because you see the results of your progress faster, and therefore aren't discouraged as easily. You must be careful though, because sometimes the money you pay on the higher interest is more than the money you free up each month when paying off the small balances. Review your finances thoroughly, crunch the numbers, and see which method would be the most effective for your situation.
- Consider your other options. If you ve discovered that it isn t possible to repair your credit on your own, start researching other options. Some of these options might include consumer proposals, debt consolidation, or as a last resort, bankruptcy. It is strongly advised that you seek a personal bankruptcy attorney to discuss your options. A bankruptcy attorney will be able to determine which option would best suit your individual needs.
Tips
- For more information on debt repair, or to find a bankruptcy attorney near you, visit www.bankruptcy-america.com
Warnings
- Get referrals of any counseling agency you work with. Some scam artists prey on desparate people.
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