How to Get Out of Debt Without the Need to Consolidate Debt Loans

Budgeting is an important step in reducing debt.

While many find accruing debt an easy task, getting back out of debt often comes harder to many. By budgeting, earning extra cash and utilizing discipline, many find that they too can get out of debt without having to use debt consolidation loans. A debt consolidation loan combines several debts into one monthly payment. Many times, a debt consolidation loan actually hurts credit and does little to solve the patterns that initially created the debt. By altering spending patterns, a debtor learns how to eliminate debt from their life permanently.

Instructions

1. Write down all expenses incurred during a one month period. Use old bank statements as a basis for most of your calculations. If a majority of your spending is in the form of cash payments, keep all your receipts. Review your list of expenditures and forecast any quarterly expenses, such as insurance payments.

2. Divide each expense into categories, such as housing, entertainment, dining out, groceries and miscellaneous expenses. Total each category to determine how much you spend monthly on each expense.

3. Review your budget to assess if there are any areas of expense that you can reduce. Review monthly bills such as electricity, cable, internet, and cell phone to see if you can lower them by switching or reducing services.

4. Find additional ways to increase your debt repayment. You can have a garage sale, take on extra hours at work for overtime, take a second job, or sell off large assets for extra cash. Dedicate any funds found in your budget or earned towards debt repayment.

5. Continue to spend a lower level of your income on discretionary spending, such as eating out and outside the home entertainment until you pay your debts in full. It may take some time but will be worth it in the end.

6. Employ the snowball method. List your monthly debt payments from the smallest to the largest. Begin applying any extra money towards the smallest monthly payment, while paying the minimum payment on all other debts. Continue paying on the smallest debt until you pay it in full. Apply all the funds spent monthly on the smallest debt to the next smallest debt until you fully satisfy that debt. Continue the pattern until you pay all your debts.

Tips & Warnings

• Check your credit report during this process to ensure that it is current and accurate during the debt repayment process. This ensures that once you are out of debt, your credit will be clean as well.

References

• The Motley Fool: How to Reduce Debt
• Dave Ramsey: Get Out of Debt with the Debt Snowball Plan