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The first thing to do before paying off debt

It's hard to make a plan until you know exactly where you stand. So, before you try to come up with a strategy, there's a crucial step you should take.

By Dec 19, 2013 5:11PM

This post comes from Gerri Detweiler at partner site on MSN MoneyYou've made up your mind: It's time to tackle your debt. You have researched ways to get out of debt, perhaps weighing the pros and cons of snowballs over avalanches to pay off your debt faster. Maybe you've thought about calling a credit counseling or debt settlement agency, or even a bankruptcy attorney, to see what they can offer.

Worried Man © CorbisBefore you decide on your plan of attack, though, there's one crucial step you won't want to miss. It can make or break your efforts to get out of debt: Get your credit reports and scores.

Here are three reasons why this step is so essential to your success.

You'll have a starting point.

Any debt counselor will tell you that consumers struggling with debt often underestimate how much they owe. If that describes you, don't feel too badly. You've probably just been focused on making sure you can make the monthly payments. But in order to create a plan to get out of debt you'll need a list of all your creditors and what you owe. Your credit report can help you identify who you owe, along with recent balances. (You can get free copies of your credit reports each year at

You may also find debts listed on your credit reports that you had forgotten about, such as collection accounts. Forget to include those in your plan, though, and your efforts may be derailed if those collectors suddenly decide to pursue you for payment but you can't afford to pay them.

Plus, no matter which approach you choose to get out of debt, you'll have to know what you owe. Your credit report can help you with that task.

You'll understand how your debt affects your credit.

If you've been making your monthly payments on time, you may assume your credit is "good." But, in fact, the balances you are carrying may be dragging down more than just your net worth; they may be hurting your credit scores.

You won't know that by looking at your credit reports, though. Your credit report just contains information about your accounts, balances and payment history. It won't analyze whether your debt may be too high.

Your credit score, on the other hand, will show you the impact of your debt means to your scores. For example, in's free Credit Report Card, one of the five factors that make up your score is "debt usage." That factor takes into account how close your balances on your credit cards are to your limits, for example. As your balances on your cards approach the limits, your credit scores suffer.

Getting out of debt will usually help your credit scores in the long run. But in the immediate term, your goals -- get out of debt and build better credit, for example -- may be at odds. Take bankruptcy, for example; it's not great for your credit, but it may be the fastest way to become debt free. Understanding where you are now, as well as how debt relief options may affect your credit, can help you make a more informed decision about which approach is best for you.

You can track your progress.

Paying down debt is usually a marathon, not a sprint, and most of us are going to need encouragement along the way. Monitoring your credit score each month is one way to get that regular dose of motivation. Over time, as your balances decrease, your credit scores will hopefully increase. But even if your credit scores suffer because you choose to settle your debt or file for bankruptcy, keeping track of your score can help you monitor your progress as you work to rebuild your credit and your financial life.

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Dec 20, 2013 12:02PM
The US Government needs a Credit Counselor yesterday!!
Dec 19, 2013 7:59PM
The Book 'The Richest Man in Babylon' was written in the 1920s and is still the best book on personal finance ever written.
Dec 20, 2013 4:07PM
The first step for cases of serious debt is to decide how much little you need to spend to live - and then learn how you can spend less.  Otherwise you can't plan how much you're able to pay.  No restaurants, no movies, no sports events, etc.  Drink tap water, not purchased beverages.  Get it out of your head that store brands and discount market products are "welfare food."  Cut out cable TV and get a cheap DSL Internet service.

Don't make life miserable for your kids but remember that if you don't disappoint them a little now their going to be extremely disappointed later.

Shop around for the lowest priced, good car insurance.  If you need to get a car, get a small used one that gets 30 mpg or better unless some relative or friend gives you a tremendous deal.

I've been there and sometimes there's so much stress and you feel like you're up to your neck in alligators so that it's hard to focus.  But you need to get mentally tough and do it and the experience will allow you to prosper more in the future than otherwise when you get back in the black.

My retirement income exceeds the avg. American workers' income.  I'm wearing Dr. Scholl's padded athletic shoes, $25 from Wally World.  I bought 4 cans of store brand sauerkraut for our family Christmas meal for 68 cents a can.  Etc.  Etc.  These sorts of things are as good as spending more and they cut your expenses!

I still spend: I take nice vacations and I just spent a couple hundred to get our next-generation's 12-yr old's alto sax repaired. I picked up the check this week for a group of seven at Baltimore's best crab cake restaurant.  But overall I get the biggest bang for the least buck.

Dec 20, 2013 1:55PM
How do you underestimate how much you owe, it says it on the GD bill.
Dec 20, 2013 11:22AM
Freedom is just another word for nothin' left to lose'
-Kris Kristoferson

Dec 20, 2013 4:25PM
sometimes finances are so vastly effected by your partner it  turns a partnership into a bad joke
Dec 20, 2013 3:05PM
Review your credit reports for accuracy.  Debt collectors do not care if you are Jon Doe or John Doe, just as long as they find some fool to collect the money from. 
Dec 30, 2013 12:12AM
I see many comments that you have to cut out everything and that is not true.  Cut back some, save a little more and get an emergency fund so that if something comes up you don't have to go back to credit.

Dec 20, 2013 7:26PM
the biggest reason people are in debt is good marketing selling um what they cant afford just stop this and you will be fine
Dec 31, 2013 3:17PM
"Get your credit report to find out how much you owe and to who"? If you are that bad that you can't even keep track of who you owe money to without asking for a credit report, maybe you need a bankruptcy lawyer first.
Jan 2, 2014 1:00PM

This article and most other articles are written by idiots for idiots.

There is only one way to pay off debt.  Spending less than you earn is the first and only requirement.  However, for most people in debt up to their receding hairline, this is precisely the problem and they have little real intention of changing that habit.  All they are looking for is a pain free solution, which short of default does not exist.

Dec 20, 2013 1:10AM
Start by paying off the highest interest card first. Then use the same money budgeted for all cards to double down on the next card. {I have also put my cards on ICE. Literally I have them in my freezer.}  My credit threshold is $3,000.00 for all my cards combined. If this ever is reached, I LOCK DOWN my card use. By tax return time I use my refund to PAY OFF my cards.  This system has helped me go from a 600 score to a 750 score in about three years. 
Dec 19, 2013 8:56PM
I asked for my credit score and one of the 3 credit agencies gave me someone else's Social Security who lives in my state and has my name.  Not a very good thing.  I guess if I want to hide from the government, I could easily do so now that I know someone with my name and his social security number.
Dec 31, 2013 12:43PM
Tackling debt?....isn't that austerity?  Can't believe MSN would even suggest paying down personal debt after all I have read from Krugman and others....debt does not matter!  So let's apply the main-stream economists current thinking to personal finance (they only difference between the two is timescale):
- if you are piling up debt but your income is falling, pile on more debt.
- DO NOT, BY ALL MEANS DO NOT differentiate using debt for investment vs consumption.
- increase stipends you are paying to your needy relatives.
- Arrange with your 5 year old (be sure to write it down) that you will take on more debt now for spending and your child will begin paying it off when he/she is 18.

You would be insane to reduce you debt, any main-stream "economist" will tell so anti-keynesian.

Jan 18, 2014 2:44PM
I know that some people "fear" credit cards and so won't use them at all. I think it's important for folks to know, though, that once you have good credit (again, or in the first place) it is actually a very good idea to have one good, no fee, low interest credit card, preferably with points or some other rewards, if you can get them. Why? Well, because many credit cards will give you insurance on your rental car as a perk of carrying the card. Not ALL cards, but some cards. Check your agreement, which can be found online or you can request one from the credit card company. There are some other things, like product replacement, or even offers to match a price if you find that price within a certain period of time. Sure, you can get burned with credit, but if you pay it off every month, spending only what you would have spent on that rental car anyway, it can be worth it's weight in gold if you have an accident in a rental car, and it won't cost you anything extra every day at the counter. You also have protections if the product doesn't work out, or sometimes even in theft cases without having to go through homeowner's or rental insurance. Finally, I know that it is smart to have enough savings to cover an emergency. But suppose you are just getting back on your feet, you know that your animal is ill, and or your car is broken down and you don't have enough in savings yet? Keeping one card, the one with the highest limit and the lowest interest, etc., is a good idea. Besides, the chances that you will be buying a home in cash are pretty low, so it might be a good idea to have some credit history for the lenders to go by. Finally, I can't emphasize enough that it is possible to get your rate lowered by calling the company if you are the right kind of customer. Most importantly, I know there is an idea floating around that you should pay off the lowest interest, smallest balanced card or debt first so you can feel good about your achievement, but in most cases, that is really foolish. I know, I know, Dave Ramsey, I know. But I don't care what he says. Do yourselves a favor before you follow him down his path. Learn how the interest is calculated on each of your loans/credit cards. Spend the time to do the math. Understand that the highest interest, highest balanced card is the one that you should attack first and attack hard. There is just no contest when it comes to paying down debt that way. Another benefit in doing this is that as the highest interest, but in this instance, more importantly, highest balance card comes down, all other factors being equal, your credit score, in most cases, will improve because they are looking for debt close to the ceiling on the cards, as well as all together. Oh, one more thing, pay your bill early. The credit card companies charge based on an average daily balance over the month and apply interest charges every day based on that balance. The lower the balance for the longer the period during the month, the less you pay overall. 
Jan 17, 2014 5:09PM

In addition to all of that: Get a part time job and use that money to pay off the debts in reverse order and use the money allocated to go after the next one on the list. If one has children of working age make them work and use their earnings to buy things they want.


Working your way out of debt is faster and more rewarding than just scrimping and saving.

Dec 20, 2013 3:23AM
When you get back on the right road,you can go out an start all over again.That the fun of it all. BYE
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