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Five Steps to Make You Debt Free

It’s no secret that lots of American consumers find themselves overwhelmed by debt. Yet remaining in that situation is not necessary. It is possible, through a bit of discipline and a few good strategies, to retire every penny of debt without having to declare bankruptcy.

The fact is, getting out of debt is not a matter of winning the lottery or getting a better job. It is a step-by-step process anyone can follow to a successful conclusion. There are five steps to the process as follows:

  • Assessing your debt load
  • Calculating interest payments
  • Establishing a budget
  • Establishing priorities
  • Refusing new debt

Step 1 – Assess Your Debt Load

The first step in becoming debt-free is to realistically assess your current debt load. This assessment includes not only big-ticket items like your mortgage and auto loans, but also things like your monthly cell phone bill, digital TV, credit card payments, and so on. Without knowing your debt load there’s no way to come up with a suitable strategy to solve your financial problems.

Step 2 – Calculate Interest Payments

If you’ve never done so before, sit down and calculate how much money you will pay in interest over the lives of your various loans. Better yet, pull out your loan documents and just look at the raw numbers. When you realize how much you’re paying in interest you’ll likely be more diligent about getting your loans paid off as quickly as possible.

Step 3 – Establish a Budget

Financial experts agree that establishing a budget is the single most important thing you can do in this process. Without a budget to control where and how money is being spent it’s unrealistic for you to expect to be able to stay on track. Your budget should cover every penny that comes in and goes out. A budget also serves to show you areas where unnecessary spending can be reduced.

Step 4 – Establish Payment Priorities

With a budget in hand the next step is to establish your payment priorities. Concentrate on high interest credit cards and loans first. Why? Because it’s the interest rates that cause most of the problem. Retiring high interest debt first reduces the total amount of money you’ll end up paying.

Step 5 – Refuse New Debt

The last step in becoming debt-free is to simply refuse to take on new debt. Believe it or not, it is entirely possible to live within your means without using any form of credit whatsoever. Millions of people around the country do it every day. If you can learn to put money away in a savings account for major purchases, while also avoiding impulse purchases with credit cards, you’ll quickly discover how easy it is to live without indebtedness.

Getting out of debt can certainly be a long and tedious process. But by no means is it impossible. If you take the steps necessary you can be debt free and, with that freedom, enjoy life without constant financial pressures hanging over your head.

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How to Manage Your Credit Card Bills

Before you lose control of your credit card debt, learn how to manage your credit card bills each month to keep your financial situation as positive as possible. This is not as hard as many people seem to think that it is. Smart financial planning is not difficult; it simply requires you to have a little dedication and a lot of self-control when it comes to your spending habits. Before your credit card bills start piling up, eliminate them.

Use Your Credit Card Wisely

If you are just starting out with your first credit card, or even your first few credit cards, there is one thing you should know: Don’t spend foolishly. You may find it difficult to deny yourself a trip to the mall to update your wardrobe once you have a credit card with a big limit, but you need to resist. The best way to manage your credit card bills is to prevent them from getting out of control. Use your credit cards for whatever you want, as long as you pay the balance of the card in full each month. Do not let balances roll over into the next month or you will start to accrue interest charges that add up very quickly.

Sort Through Your Credit Card Bills

If you didn’t use your credit cards wisely in the past, you might already have problems with debt. You can change your credit card habits right now by sorting through all of your credit cards. Make a list of the name of each card, the outstanding balance on each card, and the interest rate you pay on each card every month. Now, calculate which card you are paying the most for. Here’s a tip: It may seem like the card with the highest balance is the one you pay most for, but the card you pay the most interest on might be the most expensive card you have, even if it does not have the highest balance.

Pay Extra Each Month

If you cannot pay your credit card bills in full each month, at least pay more than the minimum amount due, which essentially covers little more than the interest your balance accrues each month. If you cannot afford to pay more to every single credit card each month, pay as much as you can to the one with the highest interest rate. Do this every month until it is paid in full, and then use the money you dedicated to paying off that card each month and apply it to the card with the next highest interest rate. Continue to do this until all of your debt is paid off. It might take a while, but it is less expensive to do it this way than to pay only the minimum each month.

Do Not Use Cards Again

If you know you will not pay your credit cards in full each month, don’t use them again once you pay them off. Save one for emergencies only, and get rid of the rest.

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How to Lower Your Debt Load

ImageAs more and more people fall dangerously into debt, strategies and solutions to lower debt load are more popular than ever.  It’s no secret that debt issues can cause a high amount of emotional stress and even physical ailments if it isn’t dealt with effectively.  Depending on your specific situation, there may be several different ways to help lower your debt load. 


Everyone is familiar with bankruptcy, and although it is an effective way to eradicate your debt almost instantly, it’s usually a last resort for most people.  When you declare bankruptcy, your unsecured debts are gone, but so is your credit rating.  It is basically set back to zero, and you may also have to give up some of your possessions to a bankruptcy trustee. 

Bankruptcy can act as a fresh start for someone who has really gotten into a bad spot, but for the average person there are better options to lower your debt load. 

Debt Consolidation

Debt consolidation is a debt lowering strategy that consists of combining or consolidating all of your debts into one.  You might still owe the same amount, or close to it, but you’ll only have one monthly payment and more importantly one interest amount to worry about. 

Usually, debt consolidation comes in the form of a loan, which is used to pay off all your other debts.  Once those accounts are closed out, you just have to pay for the loan, and all of the other creditors will stop bothering you. 

Consumer Proposal

A consumer proposal is a legally binding agreement you enter into with your creditors that allows you to pay a portion of your debt, but still be considered debt-free once you’re done. 

The consumer proposal requires only one monthly payment, which is then spread around to your various creditors.  The reason that any creditor would agree to such an arrangement is because they probably sense that you’re getting close to filing for bankruptcy.  And if you file for bankruptcy, they won’t get any of their money back at all. 

Everyday Tips

While there are always going to be ‘debt solutions’ and products to help get rid of your debt, you can also make a big difference with the things you do on a daily basis.  One primary tip is to never use a credit card for everyday purchases, and set up your life so all of your monthly expenses can be paid in cash.  As many people know, even little bits can add up very quickly.  You may have to make small adjustments to your lifestyle, but the results will be well worth it. 

You might also want to visit a credit counsellor if you’re feeling a little debt pressure starting to mount.  A credit counsellor will help you find a viable solution to any debt issues, and will also help you organize your finances so you can consistently live within your means and avoid future debt problems altogether.

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How Does Credit Counselling Work?

Credit counselling is a service that you should never hope to need, but if you do find yourself with serious debt issues, it just might get you back on the right track.  No one ever sets out to find financial problems, yet more and more people are ending up there than ever before.

Seeing a credit counsellor is one way to find a viable solution to your financial issues.  Here’s how it works.


Like most debt-related services, credit counselling usually begins with a consultation.  You will meet with your credit counsellor and disclose all of your financial data.  This will include all sources of income, all household and living expenses, and all outstanding debt.

The counsellor will explain to you how the process works and answer any questions you might have about the process.  If she agrees to take you on as a client, you will proceed to the next step.



Next, the credit counsellor will take all of the information you gave her and assess the situation.  It’s important to know just how much of a shortfall there is every month, so accurate advice may be given.  Many people are quite surprised at just how much they owe in total and just how short they’ve been every month.

The counsellor will typically help the client figure out just how much they can afford to pay each month, then find ways to reduce expenses or increase income to reach that number.  Things like eating out and entertainment are usually cut from the budget, as are vacations and things like extra cable options and similar services.

Sometimes, rearranging the expenses and income is enough, but more often than not, the credit counsellor will give advice on different debt repayment options to help you get it all sorted out.


The solutions suggested by your credit counsellor may vary quite a lot, depending on your financial situation.  Bankruptcy is always more of a last resort, but entering into a debt management program is one solution that works for many people.

A debt management program is a repayment program that your credit counsellor sets up for you.  The program is voluntary and most are designed for the client to be completely debt free within five years.

If you are accepted into a debt management program, you will deposit an agreed upon amount into an account each month, and that total is paid out to your creditors.  The amount you pay as part of a debt management program is less than the total of the amounts you were paying before.

Through your counsellor, creditors will usually agree to reduce the amount you owe or wave interest payments.  They do this to try and help you avoid filing for bankruptcy, which is a situation where they wouldn’t be repaid any of the outstanding money you owe.  Debt management programs aren’t perfect for everyone, but they are a common solution of the credit counselling process.

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How Does Debt Settlement Work?

For a lot of people, debt seems to be more a way of life than it does the occasional misstep.  Even though many people have mortgages, it is the unsecured debt such as credit cards or lines of credit that end up causing most of the problems.

Unsecured debt has a way of piling up and piling up until one day you have no way to make your payments and multiple creditors are demanding their money.  This kind of debt causes massive amounts of stress and often leads to health issues if it isn’t addressed and dealt with accordingly.

There are a handful of common solutions to serious debt problems, one of which is called debt settlement.

What Is It?

Debt settlement is a way of relieving debt that is an alternative to bankruptcy preferred by many people.  In Canada, debt settlement is also referred to as debt reduction, debt negotiation or debt help.  With debt settlement, borrowers will negotiate debt repayment programs with creditors or credit agencies to pay back a portion of the debt that is owed.  Generally, debt settlement is an option for debts that range from $10,000 to $250,000.

Debt settlement is considered for unsecured debts like car loans, major credit cards, personal loans, department store credit cards or unsecured business debts.  One of the primary reasons that a creditor will agree to a compromise on your debt is because they want to help avoid you filing for bankruptcy.  By offering to let you pay less or stop adding interest to your loans, they’ll get back some of their money, while with bankruptcy they won’t get anything.

Steps to Take

If you find yourself in a position where you feel that debt is taking over and you want to find out about debt settlement, you must take a few specific steps.  The first thing you’ll want to do is contact the creditor in question and start asking questions.  Some people have a lawyer friend or accountant inquire on their behalf.

The creditor will look into your financial situation and let you know if you are eligible or not, and if you are, you make a settlement offer to the creditor.  Usually, the amount the borrower pays is between one quarter and one half of the outstanding balance.  Once your settlement is all paid, your account will be marked as ‘paid in full’ and it will be noted on your credit report.

If you are unsure of how to proceed, asking advice from someone who knows, such as a credit counselor, can be a great help.  Even with the ‘paid’ status, you still may be considered a risky borrower for some time afterward.  Either way, debt settlement is an effective way to eradicate some of the financial problems you’ve created for yourself.