Getting Out of Debt

Simple Tips for Debt Free Living

The first thing you should know about getting out of debt is where to focus your efforts so that you can get the biggest bang for your buck.

Most people believe that there are three general categories of debt: good debt, acceptable debt and unacceptable or bad debt.

Good Debt

Good Debt is something like a home mortgage or a student loan. It is a debt that is acceptable because you get something for your money - an education or the benefits of home ownership.

Acceptable Debt

Acceptable Debt is not necessarily good debt, but most people have it and it is generally accepted. An example of acceptable debt would be a car loan.

Bad Debt

Bad Debt or unacceptable debt is what you should avoid at all costs. The best example of bad debt is credit card debt.

The Truth About Debt

The truth is that there is really no such thing as "good debt." Any benefits that you may receive from debt that some people would classify as "good debt" are far outweighed by the downfalls of having that debt in the first place. For example, if you think that having mortgage debt is good because you can claim the interest as a tax deduction, picture yourself handing over a 20 dollar bill as interest and getting back $1.00 in a tax deduction. That is the logic you are using.

Managing Debt

It's time to get organized and start getting out of debt. If you have debt in each of the commonly-used categories discussed earlier, the best place to start is with the "bad debt." For most people, that means credit cards. Here's how you can start working to eliminate credit card debt:

• Cut up all but one major credit card to keep for emergencies only - and a great sale on cashmere sweaters does not constitute an emergency.

• Do not charge anything else to a credit card. If you can't pay for it right now, don't buy it.

• Concentrate on paying off the card with the smallest balance first. Pay the minimum payment to all others. When the first card is paid off, add that amount to what you have already been paying on the card with the next lowest balance.

• Contact each credit card company and ask them to lower your interest rate. The worst thing they can say is no - which will just give you more incentive to pay the balance and close the account.

• Pay at least the minimum payment required on all of your cards each month to maintain your credit rating. Pay more than the minimum payment required - as much you possibly can - on the card you are currently working to pay off.

• As you get each account paid in full, contact the company and have the account closed. Make sure they mail you a confirming letter for your records.

• If you need help, see a debt counselor. Many are free and will set up payment arrangements for you. You'll get a step by step plan for getting out of debt, as well as guidance whenever you need it.

When you have finished paying off your credit cards, move on to your car loans, student loans, mortgages or any other kind of debt you have. Keep working until you are living completely debt free.

Debt Management Solution

The only real solution for getting out of debt and staying that way is to live on a budget. A budget will help you understand how much money you actually have and where it all needs to go. Without that knowledge you won't be able to keep from accumulating debt again.

Getting out of debt is hard work, but it all really boils down to common sense. With these simple tips I know you can do it!