How to Tackle your Debt in 5 Easy Steps

Debt is one of the leading causes of stress, making people feel hopeless and trapped. Many people lack good money management skills, making it nearly impossible for them to eliminate their debt. If you are one of those people who finds it a challenge to appropriately manage your money, you may find that it adds to your stress and anxiety. Good money management skills, however, are not impossible to learn. They are also not that difficult to incorporate into your own life. These five steps to better money management and debt elimination will help you get control of your debt and get you back on track. While money management does require some work, discipline and commitment, it can be done. Just stick with it.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• A copy of your credit report
• All of your bills
• List of your monthly expenses
• Paper
• Pencil
• Calculator

1. Evaluate Your Debt
   
   Gather your bills and get a copy of your credit report. Make a four column chart for listing your debt so that you can get an idea of what you owe. In column one, write down the name of each bill, whether it is a credit card, creditor or lender. Column two is for the interest rate on each account. In column three, write dowon the minimum payment that you can make each month. Column four will contain the balance of each account. When you are finished, your chart will provide you with a clear view of your debt. It may be tough at first to face the debt and see just where you are, but if you don't face it, you can't correct it.
2. Assess Your Monthly Expenses
   
   Make another simple chart, listing the expenses that you incur monthly. Include your rent or mortgage, utilities, phone, food and any other spending that you do every month. List any of your bills that require a monthly payment (that you have not included in your first list) or living expenses that you may have.
3. Create a Budget
   
   This is a key step in getting your debt under control and in keeping it from getting out of hand again. Combine your monthly expense chart with your debt chart. Add up the minimum payment colum and the monthly payment column of your charts then add these sums together. This is the amount of money that you pay out each month. Subtract this amount from your monthly income. The money that is left over after you pay your bills is your disposable income.
4. Make a Plan
   
   Now that you have established your spending and income and you have organized it so that you have a clear picture of it, you can create a plan. There are a few things that you can do that can help you stay on track and stick to your plan. Recording your spending is one strategy that is highly effective. Every time that you spend money, write it down, no matter how small the cost. You may be surprised at how much those minimal purchases add up. Many people lose track of their spending when they "nickel and dime" their income, with much of their spending going toward small purchases. They are often left wondering where all the money went.
   
   Another strategy is often necessary for people who are deep in debt. It is difficult, but is often necessary to get ahead. Making sacrifices is hard to do, but you may need to give up your cable TV, internet or other little luxuries until you get your debt under control.
5. "Snowball" Your Debt
   
   Arrange your debt chart so that the bill with the highest inteest rate is at the top, the second highest is below it and so on until the bill with the lowest interest rate is at the bottom.
   
   Each month, make the minimum payment on each of your bills - except for the bill that has the highest interest. Apply your disposable income to this bill, making large payment. When you do this, you are possibly doubling or even tripling your payment on that bill. Do this each month until you have paid off that particular bill. Once it is paid off, move on to the bill that is next in line, the one with the next highest interest. Keep doing this until all of your debt is paid off. This process is called "snowballing" your debt. It is very effective as long as you stick with it.

Tips & Warnings

• Check your credit report regularly
• Pay your bills on time
• Only buy what you can afford to pay for in cash (vehicles and houses are a separate issue)
• Don't use credit cards as an extension of your income
• Don't miss credit card payments
• Don't ignore your debt and hope it will go away