There is no doubt about the fact that paying off your debts is the most effective way to fix your credit. However, the problem arises when your income or the lack of it remains the same as it has. You may think it impossible to come up with the money that you need in order to pay your creditors when you still need to meet your monthly expenditures. The state of your finances including your financial planning and expenditure is what got you in debt in the first place. So without either radical change in the income or your financial planning, it will not be possible to get out of debt by paying off your creditors.
For the purpose of this article we will presume that your monthly income remains the same. So in order to generate money for meeting your monthly credit payments we will look at the necessary changes that you might need to make in your financial planning.
The very first thing that you will need to do is implemented a tighter budget.
In order to do this you need to sit down with a piece of paper and pen and make a list of all your liabilities in terms of monthly payments. Make a separate list for essential monthly expenditures and then a separate one for the payments that you need to make on your credit and loans. Adding these two up will give you a sum total of amounts that you need to come up with every month. Now go ahead and make a third list that is a sum of the minimum payments that you need to make every month on the money that you have taken on credit. This gives you the absolute minimum that you need in order to keep your credit accounts active and not to be reported as late or delinquent.
Make another list that includes all sources of income. Now compare the income list with the least that has the minimum payments listed on it. If the balance is already in your favor where you think that you can meet the minimum payments with surplus left over for monthly expenditures than half the battle is already won.
However, in most cases this won’t be the case. The reason for most of the people getting under debt is that the expenditure exceeds their income. Once you have the figures in front of you that show the discrepancy between your income and the men expenditure that you need to meet every month, you can now pick up the other list that you made that has your expenses listed on it. When you make this expense list you must include all times that you have spent money on various things were the past few months to give you as accurate an idea as possible about how your money gets spent. Now looking at this list of expenditures that you make try to isolate the expenses that could have been and can be avoided in the future. Surplus expenses like dining outside frequently, bringing on shopping and extras, casual and impulse buying that could have been avoided, saving on utility bills like telephone and electricity and such.
Cut down the surplus expenditures still the time you have enough money left over that will allow you to make minimum payments on all your lines of credit every month. This is the same procedure that credit counseling service follows in order to prepare your credit. In case you feel that you cannot manage the budgeting aspect yourself you can seek the help of one of the many voluntary non-profit credit counseling services in your city.
If you can manage to raise enough money every month by cutting down expenses to meet the minimum payments, then it’s time to implement the last final trick. This simple tip will enable you to get out of debt one by one and be completely debt free in a few months or a couple of years depending on the size of your debt. What you need to do is pinpoint the least amount of credit that you need to make payment on every month. While making the minimum payments on all the other credit accounts make the full payment on this account that you have identified. Normal instincts tell you to pay off the biggest loans first. But this would be a mistake. In order to pay a bigger loans you need a larger sum of money. When you start by paying off your smallest debts in full you will in turn start saving more and more money as these debts get over. The smaller debts will be the easiest to pay off and put the least amount of burden on your strained financial situation. As you work your way up to paying off the bigger debts by settling the smaller ones, you will realize that you have enough money left to meet the full payment every month.