Debt is a topic that I do not discuss often on this blog. Debt is incredibly important however because it affects every aspect of your financial life including your ability to invest. If debt problems are keeping you up at night, use the following steps to alleviate your debt woes.

1. Create a plan of attack

I can tell you from personal experience that having a plan of attack is the most important step to getting out of debt. There was a time that I had a lot of credit card debt and a bad credit score. My credit was so bad that I could not have bought a Rita’s Italian Ice on credit. I was fresh out of college and had racked up quite a few credit card debts. I had a MasterCard, 2 Visa’s, and a Discover card. All of my debts were in collections. I made a list of all of my debts and started by determining how much I could pay on each bill every month.

I picked amounts that I could do every single month regardless of what emergencies came up. A lot of people make the mistake of budgeting every spare dime to their debts which leaves them no savings if an emergency occurs. This forces them to go right back to racking up more debt. I didn’t want that to happen.

2. Contact your creditors

After I determined what I could pay each month, I contacted my creditors. I wrote letters instead of calling them because letters are more effective. . I prefer letters because you have a written document that shows that your terms have been accepted. If you call, you will normally end up stuck talking to a customer service representative who may make promises that they cannot deliver on.

I stated in each letter my willingness to pay my bills and listed my payment plan. For debts that were just past due, I worked out a way to get keep them from getting to collection. For bills that were already in collections, I negotiated a settlement offer.

how to get out of debt

3. Make your payments as agreed

I made all of my payments as agreed month after month. My lowest credit card balance was only $500 so I was able to get rid of that balance in a few months. My biggest credit card debt was nearly $5,000 which needless to say took some time to pay off. The bill would have been even more if I didn’t get them to forgive a lot of late charges and service fees. My payment plan was really easy. I just doubled up on my payments initially. When my minimum payment was $125, I would send $250. If my minimum payment dropped to $100, I sent $200.

This allowed me to make a dent in the interest and lowered my monthly payment. Once I got used to paying the higher amounts for a few months, I just kept paying the same amounts.

4. Rebuild your credit

It took me 2 years but I was able to repay all of my outstanding debts. I didn’t have a house at the time so I was totally debt free. My bills were paid but my credit was still bad. It took me over a year to start rebuilding my credit. I had to develop a totally different plan to get my credit score out of the abyss. I will explain all of the steps that I took in a later post but secured credit cards were particularly useful.

5. Learn to live without debt

I learned a lot from my debt experiences. Today, I only have one credit card and it is for emergency purchases only. I barely ever use the card but keep it just in case. Whenever I think about using it, I think about all of the interest that I would have to repay. I am not 100% debt free because I have a mortgage payment. That is the only outstanding debt that I have and it’s really low because I bought my house back before the housing bubble in 2001.

I have not financed anything since I bought my car back in 2006. I don’t think I will ever finance a car again just because I don’t like owing money. I never had student loan debt (that was thanks to my parents) and never took out personal loans. My plan for the rest of my life is to hopefully never use debt again. I want to save up for all of my purchases.

One thing that I did a lot differently than most people is that I never stopped investing. I didn’t care if it was just $50 or $100 a month, I would always find some amount of money to invest. This strategy worked pretty well for me.

What strategies have you found effective for eliminating debt?

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