So you want to get out of debt. Congratulations. To make your journey easier and to help you on your way, here is an easy to follow checklist to guide you on your journey. Getting out of debt can be broken down into some very simple steps to make the process easy, obvious, and help you to do it yourself.
But just like a pilot uses a checklist to make sure they don’t miss any critical step before takeoff and landing, you should use the checklist below to make sure you don’t miss any critical step in getting out of debt.
This is essentially the same process I run through in my head when people send me questions. However from reader question I have to make some assumptions and use my decades of experience to guide me in the right direction. The bottom line is I always try to let the math guide me to the most logical answer.
Using my process below, you will be able to do that as well.
You can print out this checklist and put a checkmark next to easy step as you accomplish that task to keep track of your progress.
The first step is to gather data. This means we need two sets of information. The first is going to be information about your obligations and expenses. The second is going to be about your income.
The easiest way to gather good information is for you to scour your mailbox and house for the last statements you received from people who want payments from you or paycheck stubs you got. This might be credit card bills, mortgage statements, pest control bills, utility statements, etc. Put all of these into a shoebox as you gather than or in a neat pile where they won’t get mixed up with other stuff.
Next we need to find out where your money really goes each month. Sitting down and drawing up a budget from memory isn’t going to be good enough. You will actually need to track how you and your spouse spend your money for the next 30 days.
You don’t need to make this process tough. In fact you can build the worlds best budget just using a pencil and a piece of paper or you can get all fancy and use some web based program you have to pay for. By why make this hard.
Do me a favor, spend just six minutes and listen how easily it is to create the best budget possible.
When getting out of debt you have to make saving money for emergencies and retirement a priority expense each month. If you don’t save you are setting yourself up for both a retirement disaster and one blown tire away from ruining your get out of debt progress.
I strongly suggest you read The Saddest Avoidable Mistake People Make When Getting Out of Debt. It is imperative that your path out of debt includes savings. If you can’t afford to adequately save then you can’t afford to repay your debt.
Time is the one factor you can’t control. If you waste time and don’t get back to saving quickly you will set yourself up for greater financial harm in the future. Want a extra credit lesson, read Debt and the Theory of Dissaving. Why You Need to Take Action.
Now that you’ve accumulated all the information to begin to build a really solid budget so the math can talk to us and tell us what is best and most logical to do to deal with your debt.
If you have not tracked your expenses for a full 30 days, pause here and go do that. There are no shortcuts to gathering really good data from which we can make educated and informed decisions.
Once you have all the data you can fill out the worksheet below. (From my book which you can download for free.)
I. Monthly Net Income (after tax)
First Income: _______________
Second Income: _______________
Public Benefits: _______________
Disability/Workers Compensation: _______________
Total Income: _______________
II. Monthly Expenses
Renters/Homeowners Insurance: _______________
Property Taxes: _______________
Auto Payments: _______________
Auto Repairs/Maintenance: _______________
Auto Insurance: _______________
Alimony Payments: _______________
Child Support Payments: _______________
Child Care: _______________
Life Insurance: _______________
Health Insurance: _______________
Heating Oil/Natural Gas: _______________
Telephone (Local/Long Distance): _______________
Cell Phones: _______________
Trash Pickup: _______________
Food & Groceries: _______________
Church/Charitable Contributions: _______________
Educational Expenses: _______________
Medical Expenses: _______________
Credit Card Payments: _______________
Other Debt Payments: _______________
Total Expenses: _______________
I. Monthly Net Income (after tax) is the first section of the Budget. Before entering your information into this section, it is important to understand the many factors that can affect the accuracy of entries.
When gathering the budget information, it is imperative to gather Basic Net Income figures.
Gross Income is income before taxes or any miscellaneous deductions are taken from one’s pay. It’s what they tell you your pay will be when you take a job.
Net Income is Gross Income minus taxes and any additional amounts that are deducted from one’s pay automatically (for example insurance, mortgage payments, wage garnishments,
Basic Net Income is income after taxes (federal, state, city, FICA-Social Security, Medicare) have been deducted from one’s pay, but before any other automatic deductions (for example insurance, mortgage payments, wage garnishments, child support). This is the type of income that will be entered into the Budget.
A. Determine how often you receive a paycheck (weekly, biweekly, bimonthly or monthly).
B. Determine the amount of the paycheck after taxes and before miscellaneous deductions. This is your Basic Net Income, often referred to as take-home
C. Determine if there are other deductions affecting your income (for example health and/or life insurance, employee benefits, retirement funds, charitable contributions, wage garnishments). If so, these amounts need to be added back into your Net Income to gain the Basic Net Income and then itemized in the appropriate Monthly Expenses fields.
Example: If you have child support responsibilities that are deducted directly from your paycheck, add this amount back into your Monthly Net Income. Figure out the total annual amount of child support you are responsible for and divide that amount by 12 months. Enter the total in the Child Support Payments field under Monthly Expenses.
If you make monthly charitable contributions that are deducted directly from your paycheck, add this amount back into the Monthly Net Income. Figure out the total annual amount of charitable contributions that are deducted from your pay and divide by 12 months. Consider this amount when entering the total monthly amount in the Church/Charitable Contributions field.
It is better to work with annual amounts because depending on how often you are paid, it will dictate how much is taken out per paycheck. For example, if you donate $5 to charity per paycheck and are paid twice a month, the total annual contribution is $120 or $10 per month. However, if you donate $5 per paycheck and are paid weekly, then your annual contribution is $260, or $21.67 per month. So, remember to work backwards from the annual amount, not the amount per paycheck.
First Income — To determine what your monthly income is, use the following formulas:
Paid Weekly – Multiply the amount of your pay by 52 weeks in a year then divide by 12. Do not multiply the weekly pay amount by four to get the monthly income amount. This is not an accurate calculation, as each month does not comprise exactly four weeks.
Paid Biweekly (Every two weeks.) – Multiply the amount of your pay by 26 paychecks per year. Divide by 12. Do not multiply the biweekly pay by two. This is not an accurate calculation for the same reason as above.
Paid Semimonthly (Twice per month.) – Multiply your pay amount by 24 paychecks per year. Divide by 12.
Paid Monthly – Use the amount after taxes.
Second Income — Use the same formulas used to calculate First Income to determine any Second Income that you might have from either a second job or spouse.
Public Benefits — Entries to this field include income received from Social Security, unemployment, welfare and food stamps. If you don’t know if you are eligible for any public benefits, go to to find out.
Disability/Workers Compensation — Income received for this field will generally come from your employer’s insurance company.
Other — This section will include any additional income you receive from such sources as alimony, child support or odd jobs. Special consideration must be paid to this income field:
Alimony: is taxable income and the rate of taxation may vary. Therefore, for our purposes we will calculate this portion of Other Income at 70 percent of the actual amount you receive per month.
Example: If you receive $1,200 per month from your former spouse, multiply $1,200 x 0.7 = $840. Add $840 to the total of Other Income.
Child Support: This is a non-taxable income amount. Ensure that you have not included this with your alimony payment total. If so, separate the two amounts and calculate the tax liability for alimony. The entire child support amount should be considered when calculating this portion of Other Income.
II. Monthly Expenses is the second section of the Budget. Before entering your information into this section, it is important to understand the many factors that can affect the accuracy of entries.
Investments/Savings — Entries into this field include all amounts you devote to investments such as stocks, bonds, mutual funds, IRAs, 401(k)s and 403(b)s. Any deposits you make into savings accounts should also be considered.
Saving money for an emergency fund and retirement when you get out of debt is imperative. Read The Saddest Avoidable Mistake People Make When Getting Out of Debt
In order to accurately calculate a monthly total expense for this field, figure out the total annual amount you invest and/or save and divide this amount by 12. Enter this figure into the Investments/Savings field.
Rent/Mortgage (include Homeowners Association or Condo Fee) — The amount entered into this field should include the monthly total of Rent/Mortgage amounts for which you are responsible (primary and secondary residences, vacation homes, timeshares, trailers).
Renters/Homeowners Insurance — Annual insurance premiums are often broken down into installment payments. Figure out what your total annual premium is and divide by 12 months. Enter this amount in the Renters/Homeowners Insurance field (unless it has already been included in the Rent/ Mortgage field. See “Note” below).
Example: $1,200 for annual homeowner’s insurance is entered as $100.
Note: Homeowner’s insurance and property taxes may be included in your mortgage payment (escrow). If so, it is not necessary to complete the Renters/Homeowners Insurance and Property Taxes fields.
Property Taxes — The amount entered in this field should include the total monthly tax amount incurred for all properties that you are responsible for (primary and any secondary residences, if applicable).
If you have a car property tax requirement in your state and/or separate real estate taxes that are not included in your monthly mortgage payment, then you need to divide the total annual tax liability by 12 months and enter this amount in the Property Taxes field (unless it has already been included in the Rent/ Mortgage field). If only part of this amount has been included in the Rent/Mortgage field, enter only the difference of the tax amounts.
Gasoline — The amount entered in this field should include the total monthly cost of gasoline/diesel for all vehicles you are responsible for (cars, boats, motorcycles). Keep in mind the current high cost of gasoline and the additional amounts that may be spent while traveling and for recreational use throughout the year. Divide the total gasoline expense for the year by 12 months and enter this amount in the Gasoline field.
Auto Payments — Monthly payments in this field should include both owned and leased vehicles. You should consider all vehicles for which you are financially responsible. If you have leased vehicles, figure out if there are any additional fees that will occur based on your lease agreement. For example, are you expecting an end-of-lease wear and tear penalty that has to be paid this year? Enter the total monthly expense in the Auto Payments field.
Auto Repairs/Maintenance — Make your best “guesstimate” about how much you expect to spend on any auto related maintenance for the year. (The Web Site www.edmunds.com has an excellent that can give you a good idea of the maintenance costs of your vehicle.) The amount entered should include the expenses for all vehicles you are responsible for (cars, boats, trailers). This would include major repairs and regular maintenance, such as oil changes, tires, air filters, scheduled services, etc. Divide the annual total by 12 months and enter this amount into the Auto Repairs/Maintenance field.
Auto Insurance — Auto insurance premiums are often broken down into installment payments. Determine the total amount to be paid for the year on all vehicles for which you are responsible. Divide this figure by 12 months and consider this amount when entering an amount in the Auto Insurance field.
This field also includes insurance premiums for motorcycles and recreational vehicles, such as motor homes, travel trailers, personal watercraft and ATVs. If you are responsible for any of these types of insurance payments, divide the total annual premium(s) by 12 months and consider this amount when entering the total amount for the Auto Insurance field.
Alimony Payments — If you have to make a monthly alimony payment, enter the monthly amount in this field. If you have your alimony payments automatically deducted from your Net Income (for example wage garnishment, automatic deduction), then remember that this figure must be added back into the Monthly Net Income total in order to accurately calculate your monthly Basic Net Income amount. Consequently, the Monthly Net Income amount will be exclusive of any alimony payments. These will be itemized in the monthly Alimony Payments expenses field.
Child Support Payments — If you have to make monthly child support payments, enter the monthly expense in this field. If you have this amount deducted from your net income (for example wage garnishment, automatic deduction), then remember that this figure must be added back into the Monthly Basic Net Income amount. Consequently, the Monthly Net Income amount will be exclusive of any alimony payments. These will be itemized in the monthly Child Support Payments field.
Child Care — This field is inclusive of any costs incurred for the care of a child/children, such as daycare and baby sitters. Figure out your total annual cost of Child Care and divide this amount by 12 months. Consider this monthly amount when entering a figure in the Child Care field.
Other child-related expenses can be included, but then should not be included in any other field in the Monthly Expenses section of the budget. For example, if diapers and pediatrician visits are included in the Child Care field, then do not include them in the Food and Groceries and Medical Expenses fields.
Life Insurance — The amount entered in this field should include the total monthly expenses for all life insurance coverage that you are responsible for (individual, spouse, dependents). Some people receive life insurance coverage from their employers at no cost or it may be deducted from their income. If you pay a life insurance company directly for coverage, figure out what the total annual premium is.
Don’t forget premiums that may be automatically deducted from your checking account; they are easy to overlook. Divide this figure by 12 months and enter this amount in the Life Insurance field.
Health Insurance — The amount entered in this field should include the total monthly expenses for all medical insurance coverage that you are responsible for (individual, spouse, dependents). As with life insurance, some people may receive health insurance coverage from their employers at no cost or it may be deducted from their income already.
If you pay an insurance company directly for coverage, determine the total annual premium, divide this figure by 12 months and enter this amount in the Health Insurance field.
Cable/Satellite/Internet — The amount entered in this field should include the total monthly expense incurred for all properties you are responsible for (primary and secondary residences).
Electricity — The first step here should be to get on the utility company’s monthly budget plan. They will divide your anticipated annual usage by 12 and come up with a monthly payment for you. At the end of the budget period you might get a refund check back or have to owe some money, based on your actual usage. These monthly budget plans are a fantastic way to balance your expenses. Rather than having high bills in the summer or winter, things get averaged out.
Once you have a budget plan in place, enter the monthly budget payment in this field. Remember to include the monthly payments for all the properties you are responsible for (primary and secondary residences). If you can’t get on a budget program for some reason, divide the anticipated annual usage by 12 months and enter it into the Electric field. Many utility companies provide your monthly usage on their Web Sites, so you can get an accurate picture of your expenses.
Heating Oil/Natural Gas — Do the same thing here that you did for your electric service; get on a monthly budget program. If you can’t, the amount entered in this field should include the total monthly expense incurred for all properties you are responsible for (primary and secondary residences). If you only know the total usage, divide this figure by 12 months and enter it into the Heating Oil/Natural Gas field.
Telephone (Local/Long Distance) — This category, along with cell phones, are ones that people blow a lot of money on. When you are in a financial crisis, do you really need “The Works” calling package? I don’t think so.
The amount entered in this field should include the total monthly expense incurred for all telephone services you are responsible for (primary and secondary residences). Many people receive separate local and long-distance phone bills. Keep in mind that the costs of telephone service can fluctuate from month to month.
Figure out the total annual cost of your local and long-distance telephone service and divide this figure by 12 months. Consider this amount when entering the total monthly amount into the Telephone (Local/Long Distance) field.
Oh, and make sure you are getting the best deal on your long distance calls. Many people are still paying the standard rate with one of the “Baby Bells” when there are now dozens of companies offering deals as low as five cents a minute. The calls still go down the same telephone lines, so don’t be afraid to switch if it will save you some money.
Don’t forget, in addition to home costs, include the cost of personal call charges that occur while at work, if any.
Cell Phones — These days it almost takes a Ph.D. to read a cell phone bill. It’s a guaranteed, surefire area that is costing you loads of money.
Remember the days before you had a cell phone? You seemed to survive perfectly comfortably, didn’t you? Anyway, the amount entered in this field should include the total monthly expense incurred for all cellular services you are responsible for (personal, business, family members).
Keep in mind that the costs of telephone service can fluctuate from month to month.
Estimate the total annual cost of your cellular service and divide the total year’s expense by 12 months. Consider this amount when entering the total monthly amount in the Cell Phones field. Don’t forget to include any costs of a cellular phone provided by your employer that you are responsible for.
Water — The amount entered in this field should include the total monthly expense incurred for all properties you are responsible for (primary and secondary residences). Figure out the total annual amount paid for your water service and divide this figure by 12 months. Enter this figure into the Water field.
Trash Pickup — The amount entered in this field should include the total monthly expense incurred for all properties you are responsible for (primary and secondary residences), if it is not already included on your local property tax bill.
Food & Groceries — Include the total amount spent on dining out, fast food, convenience stores, coffee, soft drinks and snacks. If you don’t have a clue what you spend on groceries, use the government figures the USDA. is to the “Official USDA Food Plans: Cost of Food at Home at Four Levels,” chart. Use the liberal amount if you are unsure. It’s always better to estimate too much for food than too little. Once the monthly food expense is determined, drop it into the Food & Groceries field.
Clothing — Enter how much you expect to spend over the course of the year for your household (back to school clothes, special occasions, business attire, shoes, etc.). Divide this total annual amount by 12 months and enter this figure in the Clothing field.
Housekeeping — Include everything that it takes to keep your household running: Laundry costs, such as the cost of detergent, starch, cleaning products, dry cleaning, etc; household cleaning materials and supplies; any maintenance items; lawn care, etc.
If you use a public laundromat, don’t forget to include that expense. Estimate your total annual expenditures for these items and divide by 12 months. Enter this monthly total into the Housekeeping field.
Church/Charitable Contributions — Figure out how much your household expects to contribute to all organizations over the course of the year. Divide this total by 12 months and consider this amount when entering a monthly total in the Church/Charitable Contributions field.
If you make charitable contributions through your employer that are automatically deducted from your net income, then remember that this figure must be added back into the Monthly Net Income in order to accurately calculate the monthly Basic Net Income amount. Consequently, the Monthly Net Income amount will be exclusive of any contributions.
These will be itemized as part of the total monthly Church/Charitable Contributions field.
Transportation (Other than car payment(s) & gas) — The amount entered in this field should include the total monthly expense incurred for all transportation costs (other than car payments and gas) that you are responsible for (yourself and family members/dependents). Examples of entries for this field are parking fees, tolls, public transportation and transportation passes.
Educational Expenses — The amount entered in this field should include the total monthly amounts for all educational expenses for which you are responsible (yourself and family members/dependents). Examples of entries for this field are tuition, books, uniforms, school field trips and tutoring.
Figure out the total annual amount you will pay for these types of expenditures and divide this by 12 months. Enter this monthly total into the Educational Expenses field. Remember that back-to-school time is one of the most expensive times of the year.
Medical Expenses — The amount entered in this field should include the total monthly cost of all medical expenses you are responsible for (yourself and family members/dependents).
If you feel your monthly medical expenses are $0, then ask yourself how much you expect to spend over the course of the year. The total annual expenses for dental and vision care should also be considered.
Examples to consider for this field are check-ups, flu shots, prescription drugs, eye tests, eyeglasses, birth control, teeth cleaning appointments, etc.
Divide the total annual amount by 12 months and enter the monthly amount in the Medical Expenses field.
Entertainment/Hobbies — This figure should include expenditures such as vacations, movies, day trips, batting cages, golf, gardening, collectibles, DVD rentals, etc. Remember that this amount must be for the entire year’s expenses. Divide this amount by 12 months and enter this amount in the Entertainment/Hobbies field.
Gifts — Think hard and try to include the total you expect to spend over the course of the year (birthdays, holidays, anniversaries, etc.). Divide by 12 months and enter this amount in the Gifts field.
Miscellaneous — This field should mop up any other expenses that have not been listed in a previous category. For example, pet expenses, summer camp, etc.
For each of the expenses that will be considered in this field, estimate the total annual amount and divide by 12 months. Add each of the monthly amounts together and enter this figure into the Miscellaneous field.
Credit Card Payments — Enter the monthly amount you spend in this field.
Other Debt Payments — This field may need to include payment amounts for computer loans, student loans, personal loan repayments to friends and family, furniture and any miscellaneous unsecured debt that has not been included in any other category.
It’s time to face the math. Enter the totals for the figures you calculated above and do the math.
The Bottom Line
Total Income: _______________
Total Expenses: _______________
Income – Expenses: _______________
Remember, emergency fund and retirement savings is a priority expense and must be included in your total expense number. If you didn’t, you just failed. Go back and start over.
If your income – expenses is a negative number then we are going to have to take some action to intervene with your debt.
If it is negative then you always have the option of increasing your income and/or reducing your expenses further if either of those are possible.
Whatever you do if you cut more you must leave money each month to have a little fun or treat the kids a bit and you must leave room to save. Don’t punish your kids for your financial mistakes.
A life of total deprivation for the kids does not create financially or emotionally healthy adults. Find a reasonable balance between affordable good fun and excessive indulgences.
A pizza night once a week and a family movie out from time-to-time is reasonable fun. Buying all the latest tech toys all the time when you can’t afford it is excessive.
Reasonable is really a tough thing to give examples of. We basically know reasonable when we see it.
A great place to look for money saving tips is at the .
It is imperative you save even when getting out of debt. This is a sacred cow, you must not abandon or stop saving or you will sink your immediate and future financial health.
This section provides general guidance about what to do. Each individual situation is unique and special and depending on other factors the individual advice may be different. Please feel free to ask me your question, join the Euro-Video Debt Support Group, or talk to a qualified debt coach for more specific recommendations based on your individual facts.
If your income – expenses is a positive number then the likely solutions to look at are debt consolidation loans, credit counseling, and a structured repayment / debt snowball strategy like that offered for free by ReadyForZero.com. Keep in mind, each strategy has a different chance of success. See The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.
To help you better understand the different major options you can read:
What to really understand the different options? Use the How to Get Out of Debt Calculator
In that case before you do anything you should absolutely meet with a local bankruptcy attorney to best understand what bankruptcy would mean for you.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
You don’t have to feel as if you have to file bankruptcy just because you meet with a bankruptcy attorney to better understand your options. You are going to learn, not going to commit to filing bankruptcy.
If the bankruptcy attorney tells you you’d have to file a chapter 13 bankruptcy and you have about 50% of your debt in cash on hand then debt settlement is an option to consider.
But if the bankruptcy attorney tells you a chapter 7 is possible, that is by far the fastest way out of debt for the least amount of money. In a chapter 7 bankruptcy your debt will be eliminated in about 90 days and you can get straight back to rebuilding your credit.
If your income – expenses is a negative number or it is positive but you are expecting a reduction in income or you are living on unemployment or draining assets to stay current then the answer is logically obvious. To preserve your ability to protect yourself in the future you must first consider bankruptcy to clear the debt as quickly as possible and get back to saving.
If you feel a need to repay your creditors after your debt has been discharged, there is nothing the prevents you from doing that as you best can.
If you would like to better understand bankruptcy, read Everything You Always Wanted and Needed to Know About Bankruptcy
Here are some classic bonehead mistakes people make time and time again when getting out of debt. You should absolutely not do these things so you don’t make a bad financial situation worse.
Here is how Investopedia defines a successful investor.
Successful investors possess the important trait of emotional stability, which means that they base their investment decisions on practical and calculated information.
Here is what an emotional investor is.
Emotional investors, on the other hand, are guided by their emotions. The rational way to handle bad news about the stock market or a company you’re invested in is to calculate the effects and make a decision accordingly. If you panic at the slightest hint of unfavorable news, you’re an emotional investor. –
The same ideas also apply in the get out of debt world. Emotional debtors become fixated on one component and can’t take their eye off of it. They remain focused above anything else.
Example: Dave Ramsey tells people they should never file bankruptcy but he filed bankruptcy and the facts seem to support a different logical approach. See Dave Ramsey’s Hatred of Bankruptcy and Credit Cards Makes No Logical Sense. In Dave’s defense, I get it, it’s his schtick.
Example: The debt relief company reinforces a belief people have a moral responsibility to repay their debts but don’t reinforce that people also have an equal or greater responsibility to make sure the future is financially safer and retirement savings is a must.
Example: If a debt relief person tells you the benefit of their program is they can make collection calls stop and not how the dollars and cents work out in your favor as compared to any other solution, then you may be in the process of being emotionally manipulated.
A Really Classic Example: If you are not evaluating the future financial benefits of one solution versus another to deal with your debt and you are just being attracted to the first solution that sounds good, you are being a reckless and emotional debtor who will most likely make a terrible mistake.
You also need to calculate and clearly understand what the longterm financial consequence will be if you dip into your protected retirement funds to deal with your debt. As an example see Here’s Why a 401(k) Loan to Pay Off Debt Can Cost You a Massive Amount in Retirement.
What seems like an innocent loan of money from your own retirement account can wind up costing you a million dollars or more in lost returns.
You should have evaluated all your other options first. In some rare examples, it can be a logical approach but those instances are not common at all.
One argument I hear from time-to-time is “My retirement account doesn’t make that much money anyway.” But that’s not a reason to drain the account. That’s a reason to change the way your retirement funds are invested. In fact if you have no real investment strategy you probably should consider placing them in a if you don’t know what to invest in.
A broad-market index matches as closely as possible the return of the overall stock market. What’s so great about that? Most mutual funds find it hard to do. In fact, less than 20% of actively managed diversified large-cap mutual funds (in plain English: big funds managed by guys and gals in fancy suits) have outperformed the S&P 500 over the last 10 years.
Do not take funds from your retirement account unless you fully understand the consequences and are willing to knowingly accept the loss of necessary retirement income, money you will most need when you can least earn and need to care for yourself.
This is most commonly evidenced by people why make an emotional reaction to deal with their debt today to make the perceived pain go away as fast as possible even though it logically and mathematically makes no sense.
Dan Ariely is a world renowned behavioral economist. Here are Dan and I talking about this issue at Duke University.
So you need to be aware of the real long term consequences of any action you take so you can make sure you have been fully informed about the consequences of your decision.
Failing to research your options to deal with your debt and understanding the pros and cons of each can result in significant financial harm from assumptions, myths, and an overemphasis on the immediate rather than the future.
They launch into extended repayment plans like debt settlement, credit counseling, and retirement or debt consolidation loans to deal with their past mistakes, only to set themselves up for a greater financial failure.
They make it impossible to get back to saving or investing in their retirement future because they use every available dollar towards debt repayment and don’t make saving a priority.
But when I ask people if it is more important to fix the future or the past, the almost unanimous response is fixing the future is more logical.
A credit score is a number calculated from a formula that benefits the lender to make cost-effective automated decisions. It is not a measurement of your personal value or self-worth but a measurement of the profitability versus risk a creditor would be exposed to in lending to you.
The credit score is not designed for your benefit. It is designed for the benefit of the creditor.
So there you go. If you’ve gathered good data, researched and examined your options, educated yourself what the truth is instead of myths and assumptions, and you have made a logically and mathematically sound decision about what to do, you’ve most likely done the best you can to make the right choices for you.
But there is just one last important component, slow down. There is almost never any reason why you should have to make the final decision about what to do in a hurry, Right Now! Don’t feel rushed into any action by anyone.
If a debt relief sales representative says you need to rush through an online document and click here and there to get going right away, tell them you want the agreement in writing so you can read and study it and have someone else read through it with you to make sure you understand it all.
If you want me to look it over and review it, you can get it to me here.
After you’ve done all the work above, you should take a day or so before making your final decision to let what you have learned percolate in your brain. Contemplation creates awareness and awareness creates your best chance of making a sound and logical decision.
Then, and only then should you take the necessary action to implement the solution and plan of action you have elected.
If you do all of this, I’m confident you will be light years ahead of most other people in the same boat and you should feel confident you are doing the right thing for you.
Once you’ve decided what path is right for you, the easy part will be to implement the solution you have selected because you will be confident you are doing the right thing for you.
Whatever events led up to your recent financial difficulties are really an invaluable education in what to avoid or not do in the future.
If you found yourself pinched because an unexpected financial event happened and you didn’t have enough money in savings to protect yourself, learn to save more.
If you drained your retirement account and it didn’t solve your problem, don’t do that again and realize the incredible importance of saving for your retirement. Make it a new priority in your new financial life.
If you became ill or injured and you didn’t have adequate health insurance, get it.
And almost most importantly, develop a conscious awareness about why you spend money and what drives your spending. You might just find there are reasons why you spend that are more emotionally driven by wants rather than driven by needs. Being aware of what drives you to do this will help you to avoid it in the future.
Some people spend money to emotionally escape, reduce stress or improve self-esteem. These and other issues are matters you can acknowledge and work to overcome. One step you can take is to read my book, The Path to Happiness and Wealth which explores these issues in more detail.
If you have decided to work with a debt relief company to deal with your situation, be smart and do a little bit of homework to understand who you are really working with. Just because a for-profit or a nonprofit debt relief representative says something, does not mean it’s true. Filter all they say through your used car salesman filter and understand they are most commonly trying to close the sale, not provide you with sound independent financial advice.
To get really smart, I would recommend that anyone considering using a debt relief company should read the following free guides.
And that’s it in eight easy steps.