Tips for Getting Out of Debt Without Resorting to a Home Equity Loan or Mortgage Refinance

I'm going to say three words that will likely send you away from this article screaming: ESTABLISH A BUDGET. There's no way around it. Even credit card consolidation companies tell you it's the first thing you have to do. You can't do anything until you have a clear picture of how much income you're bringing in versus how much you're spending.

Take one month and write down all your expenses. Save receipts if you have to, but keep meticulous track of everything you spend money that month. Even just as a one-time experiment, you can learn how to cut 20% or more of bad spending from your budget. You'll be surprised how little things like ATM transaction fees, convenience store purchases or fast food/restaurant trips cost you over the course of month. Also consider the need for monthly bills like a Netflix subscription, online gaming, or extra cable channels you rarely watch. Just like your viewing habits, also take a look at whether you really need extra Internet services like AOL as an add-on to your current ISP. And, avoid joining monthly subscription websites - even the really fun ones. There are almost always alternative forms of entertainment that cost less. $10 a month here, $15 a month there, when you add it all up it really soaks up your income. Once you honestly examine your monthly expenditures, it's a guaranteed bet you'll find plenty of things you can give up to find "extra money" to pay off your debts.

Another example is do you really need a cell phone and a landline? If you already have a good cell phone plan with more minutes than you use and long distance covered at the same rate, then you don't need the extra expense of having a house phone unless it's for business purposes. If you're paying $40 a month for your cell phone and $35 a month for your house phone, you could upgrade to a slightly more expensive cell phone plan that will still cost less than what you're paying for two phones. If you justify keeping a landline for Internet dial-up because it's cheaper than broadband, that's the biggest fallacy of all. Even if you're only paying $9.95 a month for Internet access, once you add in the cost of the phone you don't really need otherwise, you're paying around the same money as you would for broadband. If you're going to pay that much, then you might as well join the twenty-first century and enjoy high-speed Internet access.

Also, if you're one of those poor unfortunate souls that owes on a payday or car title loan, PAY IT OFF NOW! These are the most horrendous and expensive debt-builders there are out there, bar none. It's even worse if you have more than one. The interest on these types of debts can cost you hundreds of dollars per month. Before you even thinking of paying down anything else, you need to get these debt juggernauts off your back.

Another way free up money in your budget includes buying store brands instead of brand names, especially with cleaning products. Is America's Choice cleansing powder really any less effective then Comet? Will it ruin your clothes to use store brand laundry detergent instead of Tide? Not likely. Unless allergies are an issue, I recommend buying as many store brands as possible and buying them in large quantities from stores like Wal-Mart. It's much less expensive buy ahead than to pick things up from a convenience store on the way home because ran out. Have you seen what Wawa charges for a little can of Comet? Stay away from convenience stores as much as possible, there's very little you can buy there that you can't buy cheaper elsewhere. Instead, shop at big discount stores like BJ'S or Wal-Mart and you'll save a fortune on household necessities. Believe it or not, Dollar Stores work well for this too. Even if you use a little more of the product to get the same results, it's still ultimately cheaper.

Other suggestions to decrease your spending include: pack your lunches at home instead of eating out at work, use coupons if you're shy about buying store brands, enjoy a popcorn and a movie at home instead of going to the theatre (especially if you've already went into debt on a home theatre system!), buy a frozen pizza and add extra toppings yourself instead of ordering from a delivery chain, buy food in bulk and freeze leftovers for other meals, and shop at consignment, thrift or discount stores for things that you don't really need to have brand-new or designer-quality.

Once you've exhausted all the ways you trim your expenditures, and if it's still not enough, then you need to consider a second job. Even if it's just for a few months to help you pay down some bills. It could be working a few hours a week at McDonalds, selling Avon, baby-sitting, writing for PrintNPost.com, or even just mowing loans on the weekends. Find whatever works for you, and what you can reasonably invest time in without causing other areas of your life to suffer. It's a guaranteed twofer if you can bring home some extra cash while cutting back on your frivolous spending.

After you have a reasonably balanced budget in place, it's time to form your plan of attack. After you've freed up some money in your monthly budget you might be tempted to make larger mortgage payments on your home. An extra $100 a month more will increase your equity quicker and chip away at your largest debt. Good idea, right? Wrong! Increasing your investment on your home isn't a bad idea, but not at the expense of ignoring other debts that will ultimately cost you more.

Why pay off a low interest, tax-deductible debt first when you've got other obligations like credits cards or car loans that are costing you far more in interest? Even student loans, which are also deductible, should be paid off before your start tackling your mortgage. Most mortgages have a low interest rate and help make for a healthier refund come tax time, so knock the little pins out of the way before try to pick up0 a spare.

Usually credit cards are the little vampires that suck your budget dry. If you're paying the minimum balance due on your credit cards every month, that's your first mistake. Let's look at a sample scenario using the Bankrate.com Credit Card Calculator. Say you have a credit card with a $5,000 balance and a 13% APR. If you make the 3% minimum payment ($150.000) every month, it will take you 182 months and cost you $2,720.11 in interest to pay the card off. That's over 15 years! For a lot of people that's at least half the term of their mortgage. You're also paying back over 150% of what you originally borrowed. If you take the same credit card and double your monthly minimum payment, you'll pay the card off in 19 months and only pay $544.53 in interest. I know a $300 a month credit card payment is nothing to sneeze at, but look at the difference it makes. By doubling your payment, you're paying the credit card off in less than two years and saving $2,175.58.

They best way to tackle your credit cards is to start by removing the highest interest debts first. But, what if you have so many credit cards that you can't afford to make a huge payment on just one card until it's paid off? Almost all the experts agree that snowballing is the way to get around that. And, no, I'm not talking about a new winter sport. Snowballing is the practice of rolling a higher interest credit card balance onto a lower interest card. Why pay 13% interest if you've got another card with 9.9% interest? The key to this though is that you have to have a lower interest credit card with enough room to transfer the other balance. If you have a credit card with a lower interest rate and a high enough credit line to accommodate some of your other cards, but a full balance, then work on paying it off quickly so you can transfer your other balances and knock those debts out of the way as well. If you don't, then
make the minimum monthly payment on all your other cards and concentrate your "extra payment" on the card with the highest interest rate. With each balance you pay off, you free up more money to attack your other debts. That's where the term "snowballing" comes into play; as your increased payments roll down your credit card balances, eventually your "snowball" becomes an avalanche that completely wipes out your debt.

Another plan of attack is to pay off the smallest balances first. Some people feel they're making more headway if they pay off the lower balance and get them out of the monthly bill pile. If that helps your motivation to stick with a quicker repayment plan, than do it. Either way you go, you're still building a snowball that will eventually knock out your debt.

But, what if you just can't free up enough money per month to speed the process up? What if you've cut corners, trimmed all the fat from your budget you can, and you still can't come up with the extra money to pay off your credit cards? Then should you consider a mortgage refinance or home equity loan? Not quite yet, there are still other plans you can try before you put your home at risk and possibly get into a mortgage payment that's more than you can reasonably afford.

Try renegotiating with creditors. You'd be surprised how effective it can be to call XYZ creditor and say, "I'm currently paying 13% interest on your credit card, but I just got an offer in the mail today for a 9.9% interest rate and a higher credit line from your competitor. I've been really happy dealing with you, but I can't pass up an opportunity to save money. Is there any incentive you can give me to keep me from switching companies?" Then, just sit back and watch how quickly they lower your interest or come up with some sort of "special deal" to keep you their customer. Unfortunately though, that only works if your account, and credit, is in good standing.

If you're in a more troubled position, you may want to try something more brutally honest. Explain to the company that if you can't renegotiate the terms of your credit card, you'll eventually have no choice but to declare bankruptcy. They may offer a lower repayment schedule, a lower interest rate, or even go so far as to offer a reduced payoff. If creditors are faced with having to write off your debt, you'd be surprised how far they're willing to go to avoid that happening. A word of advice about reduced payoffs though, typically you save a lot of money in interest and fees, but it does negatively affect your credit report. Try to keep this option as your last resort before borrowing against your property or filing bankruptcy.