Dealing with Debt

Planning, understanding, and yes, a little willpower will
show you how to get out of debt.

Credit card debt. Car loans. Second mortgages. Take control of your personal finances and reduce debt one step at a time. You'll not only gain peace of mind, but could find extra savings in your pocket, too.

Get ahead. Even when you fall behind.

Falling into debt can seem like entering a financial black hole. It's perfectly understandable to feel overwhelmed and wonder, "What's the best way for me to take control?" Meet people exploring their own solutions to getting - and staying - out of debt.

Credit Card Debt Loss of Job Medical Debt
  • David

    Single with full-time job

    Age: 29

    Yearly household income: $35,000

    Getting out of debt David fell into the vicious web of credit card debt when he was in college. He racked up some major charges from books, going out with friends and spring break trips. David made a promise to himself to change his lifestyle now that he's trying to pay off student loans and his credit cards. He called his credit card company to negotiate a lower interest rate, contacted a company about consolidating his debt into one payment and has stopped going out to dinner in order to put more money toward paying down his debt.

    Saving for the future Because of his debt, David had to move back into his parents' house temporarily. He dreams about his own apartment and is trying to save as much as possible so he can move out and be on his own. Simply putting part of his paycheck into a mutual fund each month can help his savings grow through investment options. He enjoys a comfortable risk level, and even though there may be fees involved, he appreciates that he can easily withdraw his money.

    1 2
  • Sharon and Eric

    Working wife, out-of-work husband

    Age: 38, 40

    Yearly household income: $45,000

    Protecting savings When Eric lost his job, he knew the couple was in for a tough time. He understands that dipping into his retirement savings would be taking a step backward, leading to costly penalties and taxes, but has been tempted to use it for daily expenses. So he and Sharon are exploring other options - like taking out a loan or using the equity of their home - to replace some of Eric's income while he searches for another job and the couple continues saving for the future.

    Staying out of debt Eric and Sharon lived comfortably on their combined incomes. But now that Eric has lost his job, they need to do some serious planning to make sure they don't fall into debt. So they've taken a look at their spending and created a budget. They've rid themselves of any unnecessary expenses - like their premium cable channels - and negotiated with their utility companies to defer payments. By reducing their expenses, even in small ways, they are reducing the amount of income they need to cover their day-to-day needs.

    Keeping retirement in mind Eric had been contributing to his 401(k) through his employer. And even now that he's out of work, he wants to keep that money in a retirement account so it can continue to grow. Rolling it over into an IRA (essentially transferring it to another qualifying account) allowed him to continue saving for the future without incurring taxes and penalties.

    1 2 3
  • Tate and Ellen

    Working parents of two

    Age: 50, 41, 13, 10

    Yearly household income: $80,000

    Getting out of debt When their youngest daughter, Erin, was diagnosed with leukemia, Tate and Ellen wanted to do everything they could to help her get better, even if it meant expensive treatments that weren't covered by their health insurance. Although Erin is now cancer-free, the family finances are still suffering. By re-evaluating their budget, Tate and Ellen cut down their living costs, prioritizing spending and tracking expenses while their finances recover. They are able to put money once spent on extras towards paying down their medical bills.

Consider these suggestions to get back on the right financial path.

The good news is that there are many options to help you get out of debt, from developing a budget to downsizing your expenses large and small. Create a plan that works with your current needs and future expectations. Then be sure to follow through with it and you'll be on the way to rebuilding your financial future.

  • Create an emergency savings fund
  • Consider supplemental health insurance
  • Protect family with life insurance
  • Are you ready for the unexpected?

    Job loss. New roof on the house. Braces for the kids. Today's budget might not fit tomorrow's needs. Are your finances prepared for a surprise?

    1 of 4

  • An emergency fund creates a safety net for unanticipated events. Start yours by opening a savings account with a goal of maintaining three to six months of living expenses.

    What expenses should you think about covering?

    2 of 4

  • Find ways to save money.

    1. 1. Plan a budget and stick to it.
    2. 2. Eliminate expenses you won't miss, like extra cable channels or magazines you don't read.
    3. 3. Negotiate lower rates on credit cards.
    4. 4. Bring your lunch to work and eat other meals at home.

    3 of 4

  • Ideas to find money for your emergency fund: save more and earn more

    4 of 4

  • Can you afford to miss work if you are critically ill or injured?

    You have health insurance, but it doesn't cover everything. And it certainly doesn't cover costs to pay for daily life if you're in a severe accident. Do you have a prescription for your financial health?

    1 of 4

  • Supplemental health insurance can help fill coverage gaps such as co-pays, deductibles and nonmedical care (e.g. transportation and nonmedical housing).

    2 of 4

  • Supplemental health insurance can give you peace of mind

    1. 1. Examine your current health insurance to determine what gaps might need to be filled.
    2. 2. Determine whether you would need supplemental income to pay for daily living if you were unable to work due to injury or critical illness.
    3. 3. Consider what you can afford in monthly premiums.

    3 of 4

  • Can you afford supplemental health insurance?

    Payments can start as low as $20 per month. Adding more coverage would increase your payments, but it can also be a simple way to help keep you and your family financially secure.

    4 of 4

  • What will happen to your family if something happens to you?

    You work hard to keep them safe and provide a home where memories are created. Yet the unthinkable could happen and your family could face life without you. Find out how you can make sure they'll be taken care of.

    1 of 4

  • Life insurance can't replace you, but it can help cover expenses left behind

    2 of 4

  • Protect your loved ones with life insurance

    1. 1. Determine how much financial coverage is needed to support your family.
    2. 2. Decide the length of time you want your family protected.
    3. 3. Consider what you can afford in monthly premiums to fund your policy.

    3 of 4

  • Small steps today can provide big help tomorrow

    4 of 4

Things To Think About

How to Manage Your Credit Cards
Don't wait until an emergency happens to start getting your affairs in order:

1. Stop using them. First you need to practice living within your means, so switch to your debit card to make sure you're only spending money you have on-hand.

2. Know what you're working with. If you have balances on more than one card, list out each card's balance, credit limit, interest rate, and minimum payment. Keep sending the minimum balance to each, but pay whatever extra money you can toward the card with the highest interest rate. (That will help you pay less interest over the long run.)

3. Get your rates lowered. Call the phone number on the back of each card. When you get connected to a customer service representative, tell them you'd like your interest rate lowered. If you have a good record with the company and haven't already had your rate lowered in the last six months, there's a good chance they'll offer you a lower rate. Even a few percentage points can save you hundreds while you pay the card off. All it takes is five minutes of your time.

4. When you're ready, practice using them responsibly. Start by using just one credit card - hopefully one that offers rewards. Use it for daily expenses and other planned purchases. Along with this, stick to one unbreakable rule: The card must be paid off in full every month. Once this is no longer a struggle and you aren't tempted to overspend, you'll know you've mastered credit cards.

Protect Your Credit Score
It might seem like a good idea to close your credit card accounts after you've paid off your debt so you aren't tempted in the future. Watch out! Doing that can temporarily lower your credit score. Your score depends partly on how much of your available credit you're using. Closing accounts can wreck that ratio.

Instead, take the cards out of your wallet and put them somewhere safe. (Some people freeze theirs in ice to make them hard to get to.) To keep the cards active, use each one once a year and pay it off right away.

Your oldest credit card can be especially important. It shows a longer credit history, which can help raise your score. You definitely want to keep that card active. If the card has an annual fee, a high interest rate or some other feature you don't like, contact the card company and ask to have the fee waived or the rate lowered. If that doesn't work, just wait until you have a better card with seven to 10 years of history, and cancel the first card.

Should I Wait Until I'm Out of Debt to Save for Retirement?
Two very good reasons to save for retirement, no matter what:

1. Employer matching. If your employer matches a certain percentage of your 401(k) contributions, it makes good sense to contribute enough to get the full match. After all, why pass up free money?

2. Time is on your side. The sooner you start saving for retirement, the more your money can grow.

If you're suffocating under heavy interest or the minimum payments suck up too much of your income, it's probably best to pay off at least part of the debt before you focus on saving for retirement.

If you decide to save for retirement while paying off debts, here's a few ways you can do it:

1. Do what you can to lower your interest rates by refinancing or, in the case of credit cards, simply asking for a lower rate.

2. Figure out how much money this frees up each month and begin contributing that amount to your 401(k) or IRA.

3. Do what you can to free up other small amounts of money, which you can use to beef up your savings, pay off the debt faster or treat yourself for making great headway toward your long-term goals.

Belt-Tightening That Doesn't Pinch
Keep these ideas in mind as you begin the adventure of paring down your spending.

1. Follow your own priorities. Focus on cost-cutting techniques that are right for you. Consider:
- Your biggest expenses. Reducing them even a little bit could free up lots of dollars.
- Stuff you won't really miss. Magazines you subscribe to but don't read are a prime target, and so are extra cable channels that you don't watch often.
- Unconscious daily spending. Your morning coffee and paper might only cost $3, but over the course of a month that adds up to $60 - enough to pay the phone or cable bill.

2. If you can't eliminate an expense, try reducing it.

3. Make friends with folks who are also cutting down, and trade tips with them.

4. Talk through the budget with your spouse and kids to have everyone on board. This process will help make decisions easier, especially when a team effort is needed.

How to Track Expenditures
Follow three simple steps:

1. Every time you get money or spend it, document where, what, when and how much. (Free online tracking tools: Mint, Yodlee, Wesabe or iXpensit app for iPhones.)

2. Write out a list of categories for your spending. You can include whatever categories make sense to you. (For example, some people might have groceries, dining out, work lunches and snacks. Others might just have food.)

3. After a few weeks, add up how much you spent in each category. Take note of any expenses that happen repeatedly, and start to plan for them so you aren't taken by surprise.

Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE 68506. (877) 525-5727.

You should carefully consider the investment objectives, risks, charges and expenses of mutual funds before purchasing shares or investing money. Additional information about these and other subjects can be found in the mutual fund prospectus. To obtain a prospectus, please contact your Allstate Personal Financial Representative. Please read the prospectus carefully before purchasing shares or sending money.

Please note that Allstate Life Insurance Company or its agents and representatives cannot give legal or tax advice. The brief discussion of taxes on this page may not be complete or current. The laws and regulations are complex and subject to change. For complete details consult your attorney or tax advisor.

Life insurance issued by Allstate Life Insurance Company, Home Office, Northbrook, IL; Lincoln Benefits Life Insurance Company, Lincoln, NE. In New York, Allstate Life Insurance Company of New York, Hauppauge, NY.

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