Getting your finances in order can be a major step in any organizing journey.  And while I don’t claim to be any sort of financial planner, I have had my share of debt and bad experiences trying to get out of it.  Setting goals and being organized is essential if you want to make any progress in improving your credit or paying down debt.  Here are some steps you can take to start your own journey to financial independence.

Where am I?

The first thing you should do is take stock of where you are. Gather the latest statements from all of your accounts and total up the amount you owe.  Order a free copy of your credit report from www.annualcreditreport.com and make sure you are aware of all the accounts, good and bad, that are showing up on it.  Request statements for any debts that show on your report but you can’t find any information on.  Be sure to notify the credit reporting agencies of any mistakes and request that they be corrected.

Where am I going?

Next, set a deadline for yourself of when you’d like to be completely out of debt.  Be REASONABLE!  Don’t create a budget that has you eating Ramen Noodles three meals a day for six months.  You’ll only be setting yourself up for failure and discouragement.  Instead, set a goal that will work to pay off your debt actively and still leave yourself some money for your expenses.  Determine the amount of money per month that you can reasonably put towards your debt.  Remember that you have to pay more than the minimum each month if you want to see any progress.  Don’t forget to take the interest charges into account when setting your deadline.  Divide the amount you have available into each account, paying off the smallest debt first and paying the minimum on the rest.  Then, as you pay off your smaller accounts, you can continue paying the full amount that you set aside for debt repayment on the larger accounts and watch them shrink quickly.

Keeping track of the journey

Set up some files to help you keep track of your progress.  I like to use an expandable monthly file for monthly statements.  Take ten minutes to file your bills and statements once a week so they don’t pile up on you and can be easily accessed.

You can also chart your progress on your computer with programs like Quicken or Microsoft Money.  Even less fancy and more budget friendly, use your word processing program to create a spreadsheet and charts.  Seeing your progress each month will encourage you to keep going even while those new patent leather pumps are calling your name.  My husband and I have a dry erase board on the wall to track financial goals.  It’s a nice, brightly colored reminder of where we are and where we’re going.

Write down payment reminders on your calendar whether it’s on the wall, on the fridge, in your phone, online or on your computer or all of the above.  Yahoo!, along with several other sites, has a free calendar service that will allow you to schedule reminders for events that will come directly to your email, phone, or instant messaging program.  You can also customize and print the calendar.  Don’t miss another payment deadline!  Missing a payment can cost you additional late fees and raise your interest rates.  That one missed payment can end up costing you hundreds of dollars in the long run.

Balancing your checking account on a daily basis is also a necessity.  Using a check card all the time can cause you to lose track of exactly how much you’ve spent from that account since you’re not actually seeing the paper money or check leave your hand.  Save every receipt and write down every transaction in your register and update the balance with each transaction.  Designate one pocket of your purse or wallet, or even put an envelope in your planner or bag to store receipts and each time you get one, put it in that place immediately.  If you spend five minutes a day writing down what you’ve spent, it won’t be as much of a chore and you’ll always know exactly how much cash you have on hand before you swipe that card.  Some banks will charge you overdraft fees if your card is swiped for a purchase before one of your deposits posts even if you’ve already given the money to the bank.  Ask your bank what their policy is for the various types of deposits that you use and don’t spend that money before your bank counts it as “deposited.”

Staying on Track

If you get carried away always swiping that check card, or tend to lose your receipts, try the envelope system.  For example, let’s say you budget yourself $20 per week to spend on lattes, manicures, video games or whatever your favorite personal spending item is, withdraw $20 cash from the ATM at the beginning of the week and put it in an envelope labeled “lattes.”  Once you have spent all of the money in the envelope, you are out of money for lattes that week or month, and will have to wait until there is more money in your latte envelope to buy more.  You can use this same system for every category of your budget.  If you have $100 per month for clothing, put $100 in your clothing envelope and only spend the cash from that envelope for clothes.  It can be a real awakening to see how much you’re spending if the cash is actually passing through your fingers each time you make a purchase.  Of course, when using the envelope system, don’t carry all that cash around with you.  Only take what you will need for where you are going for two reasons:  1) If you lost your wallet or purse, you won’t be out of all that cash and 2) You won’t be tempted or able to dip into other envelopes to buy something that’s outside your budget category for that month.  Be prepared to sacrifice those nightly dinners out to pay off your debt.  Just don’t forget how good you’re going to feel once you’re debt free.

If you feel like you are so far in debt that you need help to begin to climb out, there are several companies out there that can help you by negotiating with your credit card companies to create a payment plan and even freezing additional fees being added to your accounts.  Use these services with caution though.  Research, research, research before you decide to rely on someone else to take your money and pay your bills.  I have personally experienced the wasted time and money that comes with turning to a poorly managed business for help.  I ended up losing six months worth of payments toward my debt and with some debts larger than when I had begun because the company failed to actually negotiate a payment plan with my creditors.  Look for the Better Business Bureau reliability icon on their webpage or call your local BBB office and check the company’s reliability report.  Most of these companies also keep a portion of your payment for their own fees and costs so be sure you know what this extra cost will be and how it will affect your debt repayment plan.

Companies such as Consumer Credit Counseling Services with offices in Texas, Oklahoma, New Mexico, and Colorado can provide you with financial counseling and teach you budgeting skills as well through classes and online education programs.

A debt consolidation company may be a good fit for you, but they don’t necessarily do anything you can’t do yourself for free with a little time and effort.  Learn as much as you can about the laws in your state regarding consumer debt.  Some states are more “consumer friendly” and provide you with all sorts of protections against creditors.  For example, in some states, if your account has been sent to a collection agency, you do not have to work with that collection agency to pay down the debt.  You have the right to request that they discontinue calling you and work with your original creditor to pay it off instead.

Call your credit card companies and explain your situation and let them know you’re ready and willing to start paying down that debt.  Most credit card companies will freeze your account from fees for six months or more depending on your situation.  They may also negotiate with you to create a payment plan to get the amount paid off quickly.  Don’t be afraid to ask them to lower your interest rate either, especially if another card is offering you a better deal.  Most banks want to keep your debt there as long as possible so they can earn money from the interest you pay.  If there is a chance you will transfer that debt to an account with a lower rate, they will usually match the lower rate to keep you there.  Whatever deal you make, either with a credit counseling agency or directly with your creditors, be sure to get the agreements in writing and keep careful notes of who you speak with and when.  Always ask for a confirmation number for your transaction and record and file it along with your monthly statements.

It’s your well earned money, steward it wisely and enjoy the benefits and freedom that comes from being debt free!