Debt elimination involves three steps:

1. Stop acquiring new debt.

2. Establish an emergency fund.

3. Implement a debt snowball.

Here\’s how to approach each step.

Stop acquiring new debt (This step can be accomplished in an afternoon.)

This may seem self-evident, but the reason your debt is out of control is that you keep adding to it. Stop using credit. Don\’t finance anything. Cut up your credit cards.

That last one can be tough. Don\’t make excuses. I don\’t care that other personal finance sites say that you shouldn\’t cut them up. Destroy them. Stop rationalizing that you need credit cards.

* You don\’t need credit cards for a just in case. * You don\’t need credit cards for convenience. * You don\’t need credit cards for cash-back bonuses.

You don\’t need credit cards at all. If you\’re in debt, credit cards are a trap. They only put you deeper in debt. Later, when your debts are gone and your finances are under control, maybe then you can get a credit card. (I don\’t carry a personal credit card. I don\’t miss having one.)

After you cut up your cards, stop all recurring payments. If you have a gym membership, cancel it. If you automatically renew your online video game account, cancel it. Cancel anything that automatically charges your credit card. Stop using credit.

Once you\’ve done this, call every credit card company that you just killed. Do not cancel your credit cards (except for those with a zero balance). Instead, ask for a better deal. Find an offer online and use it as a bargaining wedge. Your bank may not agree to match competing offers, but it probably will. It never hurts to ask.

Establish an emergency fund (This step will probably take several months.)

For most, this is counter-intuitive. Why save before paying off debt? Because if you don\’t save first, you\’re not going to be able to cope with unexpected expenses. Do not tell yourself that you can keep a credit card for emergencies. Destroy your credit cards; save cash for emergencies.

How much should you save? Ideally, you\’d like to save $1,000 to start. (College students may be able to get by with $500.) This money is for emergencies only. It is not for alcohol. It is not for sneakers. It is not for the new Rock Band. It is to be used when your car dies, or when you break your leg using roller blading.

Keep this money liquid, but not immediately accessible. Don\’t tie your emergency fund to a debit card. Don\’t sabotage your efforts by making it easy to spend the money on non-essentials. Consider opening a savings account at an online bank like ING or Emigrant. When an emergency arises, you can easily transfer the money to your regular checking account. It\’ll be there when you need it, but you won\’t be able to spend it spontaneously.

Implement a debt snowball (This step may require several years.)

After you\’ve finally stopped using credit, and after you\’ve saved an emergency fund, then attack your existing debt. Attack it hard. Throw everything you can at it.

Some experts say to pay your highest interest debts first. There\’s no question that this makes the most sense mathematically. But if money were all about math, you wouldn\’t have debt in the first place. Money is as much about emotion and psychology as it is about math.

There are at least two approaches to debt elimination. Psychologically, using a debt snowball offers big payoffs, payoffs that can spur you to further debt reduction. Here\’s the short version:

1. Order your debts from lowest balance to highest balance. 2. Designate a certain amount of money to pay toward debts each month. 3. Pay the minimum payment on all debts except for the one with the lowest balance. 4. Throw every other nickel at the debt with the lowest balance. 5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

I\’m a huge fan of the debt snowball. It still takes time to pay off your debts, but you can see results almost immediately.

Supplementary solutions

You can do other things to improve your money situation while you\’re working on these three steps.

First, focus on the fundamental personal finance equation: to pay off debt, or to save money, or to accumulate wealth, you must spend less than you earn.

Curb your spending. Re-learn frugal habits. (Frugality is something with which most college students are all too familiar.) You can find some great ideas on the internet. Also check Frugal for Life.

While you work to spend less, do what you can to increase your income. If possible, sell some of the stuff you bought when you got into debt. Get an extra job. (But don\’t neglect your studies for the sake of earning more. Your studies are most important.)

Finally, go to your local public library and borrow Dave Ramsey\’s The Total Money Makeover. Don\’t be put off by the title – this is a fantastic guide to getting out of debt and developing good money habits. I rave about it often, but that\’s because it has done so much to help my own personal finances. After you\’ve finished, return it and borrow another book about money.

The most important thing is to start now. Don\’t start tomorrow. Don\’t start next week. Start tackling your debt now. Your older self will thank you.

Mallory McGuinness is employed by a debt collection company. Also she composes articlesabout finance and business, consumer spending and collection agencies. Get a totally unique version of this article from our article submission service

What is the deal with debt collection companies?

There are two definitions.

A number of creditors will do their best to intimidate a debtor by using a separate company name, address, and phone number for their internal collection departments, so that they can give the impression of an \”outside\” agency. This strategy is should only be used when the debt is recent (under six months past due.)

However, most collections activity is performed by a third-party collection company, which are separate from the original creditors, and \”work\” debts on behalf of various lenders. They may also buy bad debts which have been designated as charge-offs by the original creditor.

This series of articles will be focused on third party debt collection agencies.

How does a collection company get paid?

Third-party debt collection agencies typically work on commission, this is where they receive a percentage of the amount that they collect. Individual collectors are often paid a low base wage plus commissions based on their personal performance.

A number of companies buy huge groups of charged-off bad debts for a small percentage of the face value (amount owed.) After a debt is sold, the debtor now owes the full amount to the purchaser. Since the chances of recovery decrease substantially with time, an agency might only pay 1% – 5% of face value. The agencies\’ profits come from the difference between the purchase price and the amounts that are eventually collected.

How do they work?

The main tools of a debt collection agency are telephone calls and letters.

What is the deal with collections letters?

The 1st demand letter has to say that the recipient has the right to dispute the validity of the debt or request verification of the debt (in writing). Legally, the debt collection company has to send some confirmation after they verif it with the original creditor. Demand letters also must contain the statement that they come from a debt collector, and that any information obtained will be used for the purpose of collecting the debt. Collectors are forbidden to print anything on the outside of the envelope which may indicate or suggest that this is a collection attempt. The return address label must also be discreet, so many companies will just use their company\’s initials, or some other nondescript name.

Mallory Megan is employed by a collections agency that works with a debt collection lawyer. Also, she writes pieces on business and finance, the credit industry and collections agencies. Get a totally unique version of this article from our article submission service

It is imperative that bill collectors have respect your privacy. According to the Fair Debt Collection Practice Act, debt collectors can\’t exchange information about persons that owe a debt. They can\’t distribute a list of debtors to its creditor subscribers. They cannot advertise a debt for sale, or compile a list of debtors to its creditor subscribers.

They can\’t advertise a debt for the purpose of sale, or make a list of debtors for sale to others. They can\’t leave messages with third parties requesting that the debtor to call them. The outside of envelopes sent by collections agents cannot indicate the purpose of the letter in any way. Postcards are always prohibited.

A collector is allowed to send mail in care of another person only if you live at that address or if you get your mail at that address. If you share your address with others the mail must be labeled \”private\” or personal. Basically, the letter can\’t give any appearance alluding to the fact that it is a collections bill.

A debt collector that knows your name and phone number and thus can contact you yourself is not permitted to contact your neighbors or family members. If they cannot locate you and they do call your family members or neighbors, the collector must identify themselves by name but not tell the third party that they are a debt collector.

They can\’t tell others you owe a debt or talk to them about account details. They cannot contact the person more than once, can not leave information about a debt on a third party\’s voicemail and they must provide the name of the collection agency only if asked.

If you are being contacted by a collector looking for your old roommate, relative or neighbor, the Fair Debt Collection Practice Act says that a debt collector may only get in touch with you to find the location of the person who owes the money. Only if the collector believes you have new information can they contact you again. If a collector contacts you repeatedly about a third party that can be considered harassment and you can file a complaint.

Mallory Megan works for a debt collection agency. She also does articles on business, finance, consumer spending, and collection agencies. Grab a totally unique version of this article from the Uber Article Directory