In this rough economy many Americans are having to deal with mountains of debt while working for lower wages (or no wages at all). If you happen to be one of them, you’re probably searching desperately for a way out of your financial bind. If you are, don’t feel bad because you certainly aren’t alone. Look around you. Your neighbor is probably in just as bad a shape as you are financially.
The key to getting your life back is getting rid of your debt. And no, that won’t be an easy thing to do, especially if you have been laid off and can’t find work in your field of endeavor. But it can be done! Here are a few tips for helping you get out of debt and regain control of your life:
1 – Stop going deeper into debt. Surely you have heard the first rule of getting out of a hole: Stop digging! When times are tough it’s only natural to try to make ends meet by maxing out your credit cards, but don’t do it! Instead, take all of your cards and cut them into really small pieces, then contact the banks and explain your situation. Tell them that you have every intention of paying off your outstanding balances, but you need some time. If you approach them in this way, most lenders will be happy to work with you to the maximum extent possible.
2 – If you have a house with a huge mortgage and payments you simply cannot afford, sell it. NOW! Don’t wait. It makes no sense at all to let a house that you’re likely to lose eventually anyway drive you into bankruptcy. It’s much better to get rid of it now and stop worrying about how to come up with the next payment every month. You should easily be able to find a cheaper place to live for now, then when your finances turn around you can always buy another house. But buying again later won’t be an option if you allow your current home to ruin your credit.
3 – Ditto for that expensive car you’re driving. Sell it, then buy a dependable used model for a fraction of the monthly payment. Better yet, find yourself a deal on an older car and eliminate your car payments altogether. Better still, get by without a car by taking the bus or car pooling. Again, you can always upgrade your mode of transportation later once your situation improves.
4 – Contact all of your lenders and ask them to waive the interest on your balances for 6 months. Some of them will refuse, but some will accept – especially if you explain to them that you’re on the verge of having to file for bankruptcy.
5 – Cook at home. There are few budget busters that are worse than eating out all the time. You’ll probably discover that you can feed your family for days just for the price of one family meal in a sit-down restaurant.
6 – If you’re unemployed, find a job. Better yet, find two! Yes, I know you’ve probably been looking for a job in your field for months, but perhaps it’s time to begin looking for one outside of your field. Flipping burgers or stocking shelves might not be what you consider to be a career, and you’re right. But they DO put food on the table for the short term and prevent you from having to explain a period of total unemployment to prospective employers when they finally do start hiring in your chosen field again.
If need be, take two or more part-time jobs in order to earn the cash you need to make it from day to day and start paying off your debt. The earnings from one of your part-time jobs should go ONLY towards paying off your debt, not current living expenses. And when a “real” job eventually opens up for you (and it will at some point), strongly consider keeping a part time job in order to finish paying off your debt as quickly as possible.
7 – When your financial situation finally improves, resist the temptation to go back into debt. Buying an affordable house and decent car will be just fine, but always keep in mind the hard time you went through during this downturn. Never put yourself into a situation where you could face having to file for bankruptcy should you lose your job again.
About the author: Kim Knowles is a financial planner with almost 12 years in the industry.