Part A: Total your debts and reduce your rates:
- List your debts. List who you owe money, the amount you owe, and the interest rate you are paying. Most people in debt avoid looking at these statements. The truth is often difficult to face, but dealing with this information honestly is critical.
- Call every place you owe money, especially if you are delinquent in your payments. Let your lenders know you are trying to pay off your debt, and ask for their assistance. Ask them for a lower rate of interest. Negotiate. Ask them for a payment schedule you can actually pay. Lenders are not gentle with overspenders who have to be wrestled to the mat for payment. But they are surprisingly kind to those who call promising to pay and asking for help.
- If possible, consolidate all your debt into the lowest possible interest rate. Consider consolidating with a credit card that offers several months with little or no interest, which can give you a grace period to reduce your debt.
- If you can't consolidate everything to one low interest rate, pay as much as you can on the debt with the highest interest rate while paying the minimum on everything else.
- Put all your credit cards somewhere you can't use them. Even ask your mother-in-law to hold them. Do whatever it takes. Do not use them while you are getting out of debt. It doesn't matter what wonderful perks are offered for these cards. They are never worth the cost, trouble and heartache they cause you and your family.
Part B: Pay down your debts
- Try to reduce your fixed expenses and use the difference saved each month to pay off your debt. Eliminate features on your phone or drop channels from your cable plan. When in doubt, eliminate every expense until you are debt free. You can always add expenses back after you've gotten your finances in order.
- Make one-shot reductions in your debt. Hold a yard sale and use all the proceeds to pay down your debt. Pay cash for everything, and use all your change to pay down your debt. Take an evening job or use all of one spouse's income for the next few months to pay down your debt.
- Make drastic choices until debt free. No eating out. No movie rentals. No discretionary spending. Realize that some people live on half of what you make.
Getting out of debt and getting your finances in order is a herculean task of behavioral change. We all follow mindless spending scripts that we must change for new habits to take their place. Since it isn't easy, you need all the help you can get.
I recommend Dave Ramsey's Financial Peace University. His approach includes examples of people in the same situation.