How to Get Out of Debt Without Hurting Your Credit
Create a budget., Find a part-time job., Sell your possessions., Ask for a lower interest rate., Choose which debt to tackle first., Keep accounts open even when paid off.
Step-by-Step Guide
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Step 1: Create a budget.
To pay off debt, you need to live within your means.
Ideally, you should free up as much money as possible to contribute to your debts.
Sit down and create a budget:
List fixed expenses.
These are things that cost the same each month: rent/mortgage, health insurance, car payment, food, etc.Now identify variable expenses.
Variable expenses will differ each month.
Variable expenses are also typically luxuries, such as meals out, gym memberships, and Netflix.
Try to reduce your variable expenses as much as possible, and contribute the money saved to your debts. -
Step 2: Find a part-time job.
In addition to reducing expenses, increase your income.
Find a part-time job, or freelance on the side.
Think of it as an opportunity to explore new interests while making a little money to pay off your debts.
The money from a part-time job can add up quickly.
For example, you might get a job for $10 an hour.
If you work 20 hours a week, you can earn an extra $200 before taxes.
Over the course of a full year, you will have earned about $10,000. , You can free up money by selling unused possessions.
In fact, you might be able to sell whatever you bought that got you so into debt.
Go through your home and identify anything that you can live without.
Sell it on eBay or in a garage sale.
Apply all proceeds to your debt balances. , You might be able to get a lower rate by calling up the company and asking.
Although you aren’t entitled to a lower rate, it doesn’t hurt to ask.When you call, identify yourself and how long you have been a customer.
Ask if you can get a lower APR so that you can continue to work with them.
For example, say, “Hi.
My name is Michael Jones, and I’ve been with you for seven years.
I’ve been a good customer and would really like a lower interest rate.
It seems high for me.
Can you offer me a lower rate so I can continue to do business with you?” , If you have multiple credit cards, you should commit to paying off one first.
Use one of the following methods:
Pay off the card with the highest APR.
This card is costing you the most in interest, so paying it off first will save you money.
You pay the minimum on all other cards and then contribute all remaining cash to the card with the highest APR.
Once you pay that off, you focus on the card with the next-highest APR.
Pay off the card with the smallest balance.
This will cost you more.
However, it might give you momentum.
As you pay off one card, your confidence and commitment increases. , Your credit score depends in part on the length of your credit history and the percentage of credit you use.
Closing an account will negatively affect each factor and lower your credit score.Of course, you shouldn’t start running up debt again.
If you think you will be tempted to spend, then close the account.
Your credit score will get dinged, but the damage will be less than if you rack up bills again. -
Step 3: Sell your possessions.
-
Step 4: Ask for a lower interest rate.
-
Step 5: Choose which debt to tackle first.
-
Step 6: Keep accounts open even when paid off.
Detailed Guide
To pay off debt, you need to live within your means.
Ideally, you should free up as much money as possible to contribute to your debts.
Sit down and create a budget:
List fixed expenses.
These are things that cost the same each month: rent/mortgage, health insurance, car payment, food, etc.Now identify variable expenses.
Variable expenses will differ each month.
Variable expenses are also typically luxuries, such as meals out, gym memberships, and Netflix.
Try to reduce your variable expenses as much as possible, and contribute the money saved to your debts.
In addition to reducing expenses, increase your income.
Find a part-time job, or freelance on the side.
Think of it as an opportunity to explore new interests while making a little money to pay off your debts.
The money from a part-time job can add up quickly.
For example, you might get a job for $10 an hour.
If you work 20 hours a week, you can earn an extra $200 before taxes.
Over the course of a full year, you will have earned about $10,000. , You can free up money by selling unused possessions.
In fact, you might be able to sell whatever you bought that got you so into debt.
Go through your home and identify anything that you can live without.
Sell it on eBay or in a garage sale.
Apply all proceeds to your debt balances. , You might be able to get a lower rate by calling up the company and asking.
Although you aren’t entitled to a lower rate, it doesn’t hurt to ask.When you call, identify yourself and how long you have been a customer.
Ask if you can get a lower APR so that you can continue to work with them.
For example, say, “Hi.
My name is Michael Jones, and I’ve been with you for seven years.
I’ve been a good customer and would really like a lower interest rate.
It seems high for me.
Can you offer me a lower rate so I can continue to do business with you?” , If you have multiple credit cards, you should commit to paying off one first.
Use one of the following methods:
Pay off the card with the highest APR.
This card is costing you the most in interest, so paying it off first will save you money.
You pay the minimum on all other cards and then contribute all remaining cash to the card with the highest APR.
Once you pay that off, you focus on the card with the next-highest APR.
Pay off the card with the smallest balance.
This will cost you more.
However, it might give you momentum.
As you pay off one card, your confidence and commitment increases. , Your credit score depends in part on the length of your credit history and the percentage of credit you use.
Closing an account will negatively affect each factor and lower your credit score.Of course, you shouldn’t start running up debt again.
If you think you will be tempted to spend, then close the account.
Your credit score will get dinged, but the damage will be less than if you rack up bills again.
About the Author
Jacob Martinez
Jacob Martinez has dedicated 9 years to mastering education and learning. As a content creator, Jacob focuses on providing actionable tips and step-by-step guides.
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