Find out how to pay off huge debt and start steadily saving.

One of the biggest steps you can take when it's time to tackle your debt is to come clean about exactly how much you owe. "Roughly half of the people I meet find great relief in knowing the big number—but the other half tell me it's too overwhelming and better to start with baby steps," says Manisha Thakor, co-author of On My Own Two Feet and director of wealth strategies for women at the wealth-management firm Buckingham. Whatever your approach is, here's how to get started.

Total up your monthly minimum payments. This is how much you are required to pay each month. Skipping a single payment can worsen your situation. "You could trigger a late payment and penalty interest rates and that will hurt your credit score. There's a series of negative consequences if any required payments don't get paid," Thakor says. You could also face higher rates on everything from future debt to insurance premiums.

List the total amount of outstanding debts. Get the full picture of everything you owe by writing down the current balances you have on credit cards, auto loans, student loans, mortgages and any other debts. Make three columns noting: (1) the full amount of each debt; (2) the minimum monthly payment on each; and, (3) the interest rate for each. "This way, nothing is hidden. Even that small step of listing it out is going to make you feel like you have control over the situation," Thakor says.

Sort interest rates from highest to lowest. Continue to pay the minimum monthly payments on all unresolved debts. At the same time, funnel any extra money—that's not going toward rent or living expenses—to the debt with the highest interest rate.

You may not want to hear this, but in terms of balancing loan repayment and saving for the future, the best course of action is a combination of both. It can be manageable if you follow this four-step plan from Michelle Perry Higgins, author of College Poor No More and a financial planner and principal at California Financial Advisors.

Step 1: First, transition to cash-based living. "When people have gotten used to living on credit cards, there's this endless supply of money," Higgins says, "but when your cash is gone, your cash is gone."

Step 2: While you're doing that, be sure to pay the minimums on everything, plus extra on your high-interest debt (usually credit cards or payday loans). Thakor recommends an extra $50 for every $5,000 of debt, but more is always better.

Step 3: Once you've reined in spending, begin to contribute to your retirement fund if your employer offers a company match. "We find that many companies will match around 3 percent. If you do not contribute up to that limit, you are basically giving away a 3-percent bonus each year," Higgins says.

Step 4: Then focus on an emergency fund. Cash will help keep you out of debt in the future. Three common scenarios that lead to debt are unavoidable disasters (such as a house fire), frivolous spending and lack of emergency funds—for unexpected circumstances, such as a flat tire, a hospital visit or a dishwasher repair, Thakor says. Strive to put away $2,000 in emergency funds, Thakor says—according to a study by the Consumer Federation of America, that's the average amount of unexpected expenses in any given year.

"Generally speaking, 700 to 750 and above is good and 500 and below is awful. In between the 500 to 700 range, you definitely want to be working hard to move it on up," Thakor says. At the end of the day, get-out-of-debt advice is the same for the person with a 500 credit score as it is for the person with a score of 750. "If someone who is 5'4" and 160 pounds and someone who is 5'4'' and 220 pounds want fitness advice, I'd need them to go through the same steps to get into shape. If your credit score is out of shape, the work may be harder at a worse number but it's still the same work."

Typically, you will start to see an improvement after a full year of on-time payments and a shrinking principal balance, Higgins says.

If a bill has gone to collections, make sure to pay the full amount and make sure that it's been noted on your credit report as paid, Thakor says. Do this by calling one of the three credit bureaus to make sure the debt is no longer outstanding on your credit report. This will trigger an automatic change to the other two reports. If you almost always pay the bill on time, don't be afraid to call the credit-card company and ask them to waive the late free and request that your APR remain the same, Higgins says. In most cases, the company will accept that you made a mistake, waive the fee and restore your interest rate.


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