Debt has all too often become a normal element of life. Sometimes we are not realizing that we really have too much of it. Until it begins to eat us alive and rob us of the way we are used to live.  Keep in mind that being in debt for the bigger things in life, for example a home or an education, may have some considerable payoffs.

The problem is in consumer debt! The problem lies in the department store and credit cards, and things alike. On this we really should cut down. Generally speaking, you should use no more than 15 to 20 percent of your after-tax income for consumer debt payments. Take a look at how you can determine how much you can be affording to use for paying consumer debt each month.

Lets look at your annual income, after deductions and taxes.

  • For example: $24,000
  • You can calculate your monthly earning if you divide your annual net earnings by 12.
  • For example: $24,000 divided by 12 = $2,000
  • Now calculate the amount of consumer debt for each month that you could afford.
  • For example: $2,000 x .15 (= 15%) = $300
  • For example: $2,000 x .20 (= 20%) = $400
  • So now, if you are bringing home $24,000 annually net (after taxes), and if you apply 15 to 20 percent of that income toward consumer debt, that is translating into a monthly total of between $300 and $400.

Keep in mind that this calculation is just covering consumer debt. It is not applying to long-term payments, for example a mortgage.

How To Get Debt-Free

Remember that it is NEVER too late to begin to reclaim your financial life and future. Even when you’re in serious financial problems and are so deep in debt that you feel you never can pay off everything, there is hope! You should start out by taking small steps in the positive direction. Getting rid of your debts won’t be possible overnight, but it surely will occur as long as you keep committed to that goal. Let’s look at a few useful tips and steps you may take.

You should not wait to do something. Don’t procrastinate. No problem will improve by ignoring it, and you really should quit buying things on credit. You should develop a ‘get-out-of-debt’ plan, and the ‘Debt Recovery Worksheet’ is a great tool to help you set up your plan. First thing you should do is contacting all your creditors. You should explain to them that you wish to pay off all your debts. Ask them if they are willing to work with you, and if they are willing to accept smaller payments at this moment. You will see that there are companies that will not cooperate, but also that quite a few may have a positive attitude, and are willing to help.

Cut your expenses as far as you can. You must learn to live within your means. Identify all the things you don’t need to buy at all or less often. Now you can use that money for paying off your creditors. You may also very well sell the things you only rarely use, and make sure to sell those things yourself, don’t go to a pawnshop. Make an honest and realistic overview of what you own, what you owe, and how much you can pay.

If you, for example, have a new car, it would be more sensible to sell that car and pay off the car loan than wait for a repossession. This would also definitely be harmful for your credit report. Do whatever it takes to beef up your income, as long as it is within the law. You could maybe take on a second job, or work as much overtime as you can. Apply all your additional income to your creditors, but bear in mind that your absence while working extra hours might have a negative effect on the well-being of your family.

Remember to first pay off the loan that has the highest interest rate. Don’t just start with the loan that has the highest balance. By the time you have paid off one of the creditors, redirect the payments right away to pay off the next loan. If you can, consolidate all of your loans. This means you shift the various high-interest loans into one single low-rate loan.

Keep just one or maybe two credit cards, and make sure to cut up all the other cards, and contact the companies for cancellation of the accounts. You also should reduce your credit limit on the remaining card(s). If you want to stop all those credit card offerings reaching your mail box, call 1-888-5-OPT-OUT.

In case you need more (professional) help to cut your debt, you can get in touch with a (nonprofit) consumer credit counseling organization like the US National Foundation for Credit Counseling. Agencies such as this will be a great help if you want to restructure your debt. If you consolidate your debts in one low-interest loan, it will be so much easier to pay it off. Call for more information 1-800-388-2227.