6 Best Ways to Get Out of Debt

Are you in a financial landslide?

When you're unable to pay debts, the consequences can haunt you (and your credit report) for years, and the longer you wait to deal with it, the worse it gets. Nearly 70 percent of American households have some form of debt. That's a smaller percentage than during the worst of the recession, but debt statistics for the United States are still sobering:

•Median household debt in the US is $70,000
•Average mortgage debt is around $150,000
•Average student loan debt is over $33,000
•Average credit card debt is over $15,000

While the specifics of getting out of debt vary from one household to the next, getting out of debt can be distilled down to a few principles. Here are the six best ways to get out of debt.

1. Find Out Where You Stand

Knowing what your credit history looks like does two things: It alerts you to possible mistakes on your credit record (which are fairly common), and it gives you clues to how flexible creditors will be should you try to renegotiate payment plans. Reading your credit reports helps you envision how lenders view your debt situation.

Once each year you can go to AnnualCreditReport.com and download your credit reports from Experian, Equifax, and TransUnion for free. Your credit report is not your credit score. Services like CreditKarma.com provide your TransUnion score for free. Other services generally require payment for providing your credit scores.

2. Lock Up the Credit Cards

You have to avoid digging yourself any deeper in debt. Lock the credit cards in a box, cut them up (except one for true emergencies), or even freeze them in a bowl of water. You want to make it hard to use your credit cards. Generally you shouldn't cancel credit card accounts, because this will lower your ratio of available credit to credit card debt, and can ding your credit score. Plus, you have to pay them off anyway. But you should make it difficult to use them.

3. Negotiate With Creditors

This is hard for most people, but it can make a difference. Prioritize your most important bills, like mortgage payments or rent, utilities, transportation, and insurance, and pay them in full if possible. If you're not able to pay the minimum on a credit card, call the card issuer. Depending on your history, you may be able to negotiate a lower interest rate, or at least a lower minimum payment. Creditors don't want to track you down or send your account to collections, and calling them and explaining your situation makes it less likely they'll have to.

4. Make a Budget

Making a budget indirectly helps you get out of debt by making you accountable for your spending. List monthly income and recurring expenses. Overestimate important expenses like utilities, transportation, and food to allow yourself a little margin. Mint.com has outstanding budgeting tools that are simple to use. Look for places in your budget you can cut back, like canceling cable TV, ending your gym membership, or cutting entertainment expenses. Whatever money is leftover after monthly expenses should go directly toward your outstanding debts.

5. Attack Debt Methodically

Choose one outstanding debt to target first. There are different theories on the best way to do this. Some people choose the smallest debt first for the motivation that paying it off will provide. Others choose to go after debt with the highest interest rate first, because it's costing the most money.

Once you choose which debt to work on first, pay the minimums on all other outstanding debts, and put every leftover dime toward the debt you're targeting. Repeat until the targeted debt is cleared, then choose another to tackle. There are no shortcuts, and you may have to make difficult spending choices, but it's better than a debt going into collections. Eventually you'll have your debts paid off, and few accomplishments feel better than this.

6. Use Unexpected Money Wisely

Don't include things like year-end bonuses in your budgeting, because amounts and timing are not guaranteed. When you find yourself with unexpected money, put it toward debt before you have a chance to think about it. It only takes a few minutes to decide that you should treat yourself, or have some fun, but the fun of a new iPad or flat screen TV is nothing compared to the feeling of not owing anyone money.

If you're really in over your head and worry that bankruptcy may be necessary, consider working with a consumer counseling service. Before choosing a service, check with your state's Attorney General's office to learn if there are complaints against it. The Department of Justice has a list of approved credit counseling agencies for debt counseling as well. Unfortunately, some organizations claiming to be credit counseling services charge high fees and can make debt problems even worse.

Wanting to get out of debt is a goal shared by millions. It requires discipline, but it can be done if you approach it methodically. Debt impacts the whole family, so it's good to deal with it as a family. When everyone has a shared goal, you'll feel better about sacrifices you have to make, and the whole family can share in the sense of accomplishment once you get out of debt.

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