How to Pay Off Debt When You Don't Have Extra Money

The first thing you are always told when you look into paying off debt is to make more money. Most of us are already doing the best we can. With the economy the way it is, almost everyone has some type of debt.

There are many ways out there to help you pay down your debt.

Credit Counseling Services - Consumer Credit Counseling is a good idea. You do have to cancel all your credit cards and you have to include all of them. They couldn't lower my payments enough to make me want to erase my credit history. Your credit report will reflect that these debts are in credit counseling until they are paid off. As long as you continue to make your payments, the debts will stay out of collections. Your credit will be affected negatively while you are in the counseling program, but will not be affected as severely as if you have debt in collections.

Debt Negotiation - Do not become involved with debt negotiation.  This solution is a lose lose situation. Not only does it impact your credit negatively, you have to pay a large fee to the negotiation company. You stop paying your credit card bills and wait for the company to negotiate for you. This solution requires a lot of work on your part, is stressful because the card companies still call you three times a day, and the negotiated settlements are ridiculous. For settlement offers you receive, your initial thought will be that if you had that much money just lying around, you wouldn't be having trouble paying your bills. Your cards get canceled. The truth is, you can negotiate just as well on your own if you are willing to spend a couple of hours on the phone. In fact, the credit card companies will offer you a better deal than they will offer to the debt negotiation company. This solution has a tremendously negative impact on your credit score as it will reflect the lack of payments.

Collection Agencies - You are not required by law to work with these collection agencies or collection agencies that masquerade as law firms. They lie and use intimidation techniques. Basically, they will do anything to get your money. You can send them a letter requesting they cease and desist communication with you thereby stopping the annoying phone calls. You can also let them know that you deny their offer for services. In reality, all a credit agency can do if offer you a service. You can decline and ask that the debt be sent back to the original creditor.

So with all these solutions that don't work, what does work?

There is a great solution called "snowflaking." Snowflaking is a sister of the snowball technique by Dave Ramsey. This is where you finish paying off one debt and apply the payment you were making towards that paid off debt to a new debt in addition to what you have already been paying. Basically, you are paying $20 towards two credit cards each month. Pay off one card then make payments of $40 to the remaining card.  However, in these economic times, you may really need that $20 for other expenses such as food or gas. The snowball solution works great if you have a static budget each month. If your household is like most households in America, things change from month to month. You are living on unemployment or have taken a pay cut in recent months.

What are snowballs are made of...snowflakes! With snowflaking, you pay your bills as you normally would each month. Then, look for bits of extra cash you can apply towards debt. Sell something. Complete online surveys. Do odd jobs for extra money. Once you have some money, put that towards your debt immediately. For example, you sell a pair of jeans you find in the closet with the tags still attached on Ebay You may $16.24 from the sale. Apply that $16.24 directly towards debt. $16.24 may not seem like it is going to make any difference. However, these small snowflakes add up.

The biggest task for paying off debt is not to charge it back up! Once you pay off a card, take it out of your wallet. Forget you have it. Don't cancel it because that will reflect negatively on your credit report. Just don't use it.

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