So perhaps you’re reading this and you know that you have already accumulated a significant amount of debt. Maybe the bills are mounting and you’re getting worried about paying the rent, or house or car payments. Someone has lost a job or can’t work as much. You’re in the middle of a divorce. Maybe you’re at the point where you can’t even keep up with the minimum payment due on your cards let alone anything else, or you are using one card to pay off another. Or perhaps you’re even at the point where you are thinking that you can’t possibly pay off all that debt. Maybe you’re wondering how you’re going to make even those minimum payments. Maybe bankruptcy is looking like a real option.

Regardless of where you are financially, you can stop at any point and take the first step back out of debt. Take a deep breath, and let’s walk through some ways to get a good, clear picture of what’s happening in your life financially:

Get a copy of your credit report. Your credit report is exactly what it sounds like – a report of how you use credit. It lists all the accounts you have open, the balance on your accounts, your payment habits (i.e. if you pay on time, late, pay the minimum payment or more, etc.). Under the Fair and Accurate Credit Transactions Act you can obtain a free copy of your report from any of the “big three” credit bureaus – TransUnion, Equifax and Experian.

Once you obtain a copy of your credit report, check to make sure it’s accurate. If there are any mistakes, write to the bureau, listing the error and ask for the correction to be made. Keep a copy of the letter and ask for a new copy of your corrected report to be sent after the changes have been made.

If there are open accounts listed on your credit report that you no longer use, or intend to use, cut up the card and contact the creditor in writing to let them know you are closing the account.

Make list of your debts. Create a simple chart listing each debt so you know what your financial picture looks like. Include in the chart to whom you owe the money, how much you owe, and the interest rate on the loan. Include all mortgages, credit cards, charge cards, personal loans, student loans, medical debts, back taxes, child support, car loans, bank checking account overdraft loans, overdue bills like utilities and money owed to family and friends.

If you’ve taken out cash advances on your credit cards you might want to list them separately since they will likely carry a higher interest rate than your credit card purchase balance.

Take your time and make sure you have listed all regular payments on debts of any sort.

SAMPLE CHART

Contact creditors to let them know of your financial situation. Ignoring your bills is always a bad idea. Even if you can’t pay the bill, contact the company and explain your situation. Apologize for letting your payments lapse, let them know you want to pay them back in full but that it might take more time because you’re in a financial crunch. Ask if they will work out a payment plan with you – let them know how much you can pay now and how much you could expect to pay over the next several months. If you are good about paying your credit card bills on time, ask if they will consider lowering the interest rate. If not, consider switching to a card (and transferring the balance) to a card carrying a lower rate. Check out Bankrate.com to compare credit card interest rates and terms. Ask if they will consider removing the interest fee on your current bill if you agree to no longer use the card and to pay your outstanding balance in full by an agreed-upon date.

Prioritize and begin paying. If you haven’t already, stop here and take the time to create a budget. Look where you could trim expenses and tighten up to begin putting more money toward paying off the debt. Instead of trying to pay off a little bit of each card, figure out which card charges the highest interest rate and put all of the money possible toward paying off that card first. When you have finished paying that one off, cut it up, close the account (remembering to write both the credit card company and sending a copy to one of the three major credit bureaus), and start paying off the second card. It may take a while, but having a plan to pay off your credit card debt is the best first place to start.

Consider professional help. Remember that you don’t want to get back into the situation that got you into debt in the first place. It may be a good idea to review our section on getting professional help, especially if you think it will take years to pay off what you owe. (It often takes long for situations to resolve themselves than you may expect or hope.) Even if it didn’t take that long to get into debt, it will probably take you a while to get out of it. Try to achieve small successes along the way so you will stay motivated to keep going!