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When Debt Sets Up Camp on Your Doorstep: Practical Strategies for Reclaiming Your Finances

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When you are up to your ears in credit card debt and every other kind of debt, phone calls are bound to begin coming in from debt restructuring companies and other firms who try to offer you easy ways to get rid of your debt. While you should consider serious offers (and not the spammy ones), there’s something far better that you can do: choose the hard and old-fashioned way of cutting back on waste and building up savings. It’s possible, and plenty of people to it.

If you’re reluctant, you should think about it this way — you have to begin at some point. If you don’t make big changes now, someone from a creditor, a court or elsewhere will make you do it. You’ll feel far better doing it on your own. If you’re ready, try these steps.

Stop feel-good purchases on borrowed money

Ending credit spending on feel-good purchases should be your first move. If you’re used to leaning on your credit card for inessential purchases whose sole purpose is to make you look good to other people, you need to take a close, hard look at what you’re doing. What does it say about you when you care so much about having everyone believe you have money to blow, that you will borrow to keep up the charade?

Not only will you need to pay back that money two or three times over with interest, you’ll need to pay much more for everything you do in life, because of the hit that your credit score takes when you run up high balances on your cards. If you can’t bear the thought of what people will think of you if you suddenly stop getting new clothes all the time, you should draw up a definite plan to slow down over the next six months. People will simply think that you’re growing too mature (and you actually are), and won’t think there isn’t enough money.

At the end of the six months, you can turn on your resolve to never once go shopping on borrowed money again. It’s a different kind of feel-good move to always shop on money you actually have.

Set up your own “credit card” to dip into

Credit cards are the ultimate ripoff. Banks rely on the knowledge that most people live lives too chaotic to think to save enough to set up a simple expense fund worth $2,000 or $3,000. If they had such a fund, they would never need a credit card. They could simply take money out of the fund each month and put it back, and never pay interest to anyone. The simple failure to set up such a fund leads to dependence on a credit card. The banks hand you this card with money, knowing that you will never realize that it’s a slippery slope.

You dip into it a few times for a couple of surprise expenses of the kind that you believe will never turn up again, and before you know it, you owe $1,000 and are rolling your balances over month-to-month. You can’t pay it back because new surprise expenses keep coming up. In just a few months, you max out your card and begin paying massive interest. Banks know that you’ll do this.

You want to fight back. While you should keep making those card payments, you should also work hard to set up that fund that you are to treat as your credit card from now on. You simply must never pay interest on a card again. It makes no sense paying a credit card company interest for a small sum of money that you borrow over and over again.

Set up a plan to pay off your credit card and other debts

Once you stop digging yourself into a bigger hole each month, it’s time to start filling up the one that you’re in already. The plan is simple — get rid of every drain on your money that doesn’t actually help your financial situation. This would mean everything from a new car that you don’t absolutely need to cable subscriptions and nights out. Since your home is an investment, keeping it and making payments makes sense (as long as you refinance your mortgage). You should consider everything else for a possible cutback.

It can help to join a Facebook group for people trying their best to cut down on their expenses and pay off their debts. When you see how many other people sell their cars, and everything they own because they understand that there’s no feeling like being debt-free, you’ll be inspired to make big cuts yourself.

Make money on the side

When you owe a lot of money it can feel as if a moneymaking machine is all you are. You get up each morning, go to work all week, and when you get paid, you hand most of it over to your creditors. If you’ve been doing this, you might consider going at it a little harder, perhaps just a couple of years longer. You should consider finding a way to make a little extra money on the side with a weekend job or another method. The money you make will help you pay off your debts more quickly. When it’s done, you’ll simply feel better about yourself, and about life.

Finally, whatever you do, you need to make sure that you don’t ever miss a payment. You may even need to look for loan information online for a short-term loan to cover a payment. Missing payments ruin credit scores, and you don’t want that.

Keeping an eye on the big picture of your credit history, cutting back where necessary and always making those payments, you’ll get to that wonderful, debt-free place before long.

Tom Hanson shares his personal finance tips on a range of money related blogs. He has worked as a personal finance consultant for several years and is a Dad of 3 kids, and 2 dogs.

FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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