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By Richard Paul Evans
First, there are few things in America as common as debt. A lot of people have different philosophies about debt and there are questionable books out there telling you to just blow off your debts. Most of it is trash and what they conveniently leave out is how much you, and others, will suffer for following their advice. Call me old-fashioned, but I believe in integrity. I believe that if you created the debt, the honorable thing to do is to pay it off. But there are 5 simple steps that can protect your credit, save you money, hassle and time. I have personally used this 5-step technique with major corporations. And what works on multi-million dollar levels works just as well on an individual consumer level.
STEP 1. RECORD ALL YOUR DEBT ON ONE SHEET (IF POSSIBLE) SO YOU KNOW EXACTLY WHAT YOU’RE FACING. Better the devil you know than the devil you don’t. Write down the company or person you owe, how old the invoice is, the invoice number and the amount. Make sure you don’t miss a single debt, as having unaccounted debt pop up later is demoralizing.
STEP 2. CONTACT (PREFERABLY CALL) EVERYONE YOU OWE MONEY AND ASK IF THEY WILL REDUCE YOUR DEBT. If you read yesterday’s tip, you learned about the 7 golden words, what they are and how to use them. Using the seven golden words you’ll be amazed at how much you can reduce your debt. If you missed that tip I’ll share the words again: ‘IS THAT THE BEST YOU CAN DO.’
I once helped manage a company that was trying to avoid bankruptcy. At my counsel they directed one employee to call their creditors and use the 7 golden words. This technique knocked out more than a third of their quarter million dollar debt in just one week. We found that many of the creditors were willing to accept as little as 30% of the invoice if the company would pay off the debt quickly. (Doing this may require you to shuffle your payment priorities a bit.) A few companies that were not willing to negotiate the price willingly offered to negotiate the terms of payment. One creditor changed a large lump sum debt to an escalating payment, starting low and stretched it out over a year with no interest. You will probably be surprised at how often your creditors will be willing to work with you. Most companies are so used to people trying to avoid payment that someone trying to honorably pay their debts is a treat.
3. CONSOLIDATE YOUR REMAINING DEBT WITH THE LOWEST INTEREST RATE POSSIBLE. If you are struggling with significant debt, you might want to consult with a CCCS–a consumer credit counseling service–to create a debt repayment plan. This is a little tricky as not all CCCS organizations are good. Do your homework before signing up with one.
4. PAY DOWN YOUR DEBT. I recommend directing at least 10% of your income to debt retirement. (In tomorrow’s tip I will explain why you should continue to build a nest egg as you pay off your debt.)
5. DON’T CREATE ANY MORE DEBT. This might be the time to cut up some credit cards. In today’s world it’s not necessarily realistic to not have a credit card, but you can cut down on the number of cards you use, lower their limits or, if you’re unable to control yourself, change to a debit card. (Warning: It is not necessarily in your best interest to close down a credit card. This can lower your credit score. Simply destroying or not using the card can be just as effective.) One of the worst things that could happen after you have consolidated your debt is for you to create a new form of debt. If you suspect that you’re a compulsive or binge spender, get help now. Remember, it takes time to pay off debt, but the sweet taste of freedom at the end of the journey is worth every step.
Richard Paul Evans is a #1 New York Times bestselling author and the founder of the 5 Lessons Institute. (5Lessons.com) His new book is called: The Five Lessons a Millionaire Taught Me for Women. To order the book click one of the online retailers below:
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