How to get yourself out of debt

It's unfortunate that so many people have gotten themselves into financial trouble and mismanaged their money. But there is hope for you! This article will provide you with some helpful and practical solutions to get your finances under control.

Instructions

Difficulty: Moderately Easy

1. **Where are you now?**
   
   Before you can dig yourself out of debt, you first need to get a handle on your current finances. This means knowing exactly how much you money you're making (income), how much you're spending (expenses), and how much you owe (loans and other debt).
2. **Categorize things**
   
   Now that you've gathered totals for your income, expenses, and debt, you should begin to categorize things by grouping similar items together.
   
   For example, how much you're spending on food? Entertainment? Rent or mortage? Income from work (jobs)? Income from stocks, bonds, bank interest? Student loans? Car loans? Etc.
   
   The reason why you want to do this is so you can get a handle on where you're money is coming from and where it goes.
   
   TIP: Most people are shocked when they see how much they spend on things!
   
   For instance, that $3 coffee each day really adds-up over time. And that's money you could have been saving and earning interest on, investing, or using to reduce your debt.
3. **Control expenses**
   
   The most important thing you want to do is get control of your expenses. You want to lower your debt cost and begin spending your money more wisely!
   
   To help lower your debt, first try to cut down on or cut out unnecessary expenses. For example, if you're spending $300 a month in entertainment, then lower it. Stay home one weekend instead of going out drinking. This alone will save you some bucks. Instead of renting movies from Blockbuster, check some out from your local library.
   
   Don't eat out nearly as much, which is a huge money waster! Food and beverages are more expensive when served in restaurants, bought from vending machines, and bought in fast food joints. Now I'm not saying to never eat out unless you want to. But cutting out one day a week, or one meal during the week will be a good start.
   
   Instead, eat at home. Now this doesn't mean you have to cook elaborate meals. You could buy a package of hamburger meat and get several burgers out of it for far less than you'd pay in restaurants and fast food places. Or you could buy packages of chicken breast. And if you like pasta noodles, then you could buy Ramon noodles.
   
   Another great way to save money and get a handle on your expenses is to either buy your favorite things in bulk and/or shop at dollar stores. Unlike a few years ago, dollar stores today carry some name brands and practically every item imagineable.
   
   I've bought lightbulbs, drinks, cereals, snacks, sunglasses, toiletries, candles, cleaning products, shampoos, etc. In other words, they're just like Wal-Mart in many ways at $1 a piece.
   
   TIP: Baby steps are a start
   
   You don't need to take drastic action right away. You can start small and work your way up. You see, it's not the spending you've got to contgrol, it's your mindset.
   
   In other words, a lifestyle change is what's needed to dig yourself out of debt. A change from wildly spending money on unnecessary things that don't seem expensive and on spending other people's money (credit cards and loans) to spending wisely and on what's needed. So making a few minor adjustments now will help get you started.
4. **Shift debt**
   
   If you have high interest credit card debt or loans, try shifting it or a large portion of it to a lower interest one. This is an easy way to lower your interest costs and start digging yourself out of debt sooner rather than later.
   
   You see, it's not the principle (money borrowed) that gets people into trouble. It's the never-ending and ever-increasing interest that kills you!
   
   So shaving a little bit off your interest rate(s) can and will make a difference!
   
   And if you can do a consolidation loan, that may be a good way to go. A consolidation loan is a loan that is used to pay off other loans. This way, instead of having say 3 separate loans, you'll have 1 that is used to repay all three.
   
   The advantage of a consolidation loan is that it reduces the number of creditors you have to owe down to just one. And you may be able to get a loan at a lower or better rate than your current ones. So you may want to look into this to see if you qualify and how much you can consolidate.
   
   The point with this strategy is that you're shifting bad debt into better debt. And the interest you'll be saving will help build your savings and get you out of debt sooner.
5. **Credit card management**
   
   Just because you're offered a credit card doesn't mean you have to accept. You see, just having a bunch of credit cards to your name could hurt. The reason is because your credit limit will be high and you'll have lots of cards to use and spend. So just having many cards, even if you don't use most of them, makes it appear as though you will spend their limits.
   
   So cut down the number of cards you have and don't accept any others unless you really need to. Or accept one that has a lower rate and transfer the balance from your higher rate card into it. Then close the higher rate card down.
   
   And if your credit limit is raised, don't use that as an excuse to go shopping. Spend no more than you would if they never raised your limit! This will prevent you from overspending and getting deeper into debt.
   
   
   Pay more than the minimum! Paying just the minimum balance on your cards may seem like nothing. But it's actually digging you deeper and deeper into a financial hole. The reason is because the interest keeps growing and it'll take years and years of minimum payments just to repay what you borrowed!
   
   So paying more than the minimum will help lower your interest and get those balances paid off faster. Smart people pay the full amount when due and owe no interest at all! Credit card companies don't like these people because they don't make as much.
   
   You see, it's the ones who pay late and less than the full amount who generate more money to the credit card companies. How? Late fees, interest, and continued spending.
   
   Don't fall for this and continue being a victim of it! Take control and spend what you need to, repay a little more, and pass on higher credit limits.
6. **Build up your savings by increasing your takehome pay**
   
   Now that you're beginning to reduce your expenses and get your debt under some control, you can now begin rebuilding your savings. This means putting more money into the bank earning interest. Or putting some money into investments like CDs, etc.
   
   One thing you may want to do is adjust your withholding allowances on your W-4 form from work. That form tells the employer how much money to deduct from each of your paychecks and set aside for income taxes.
   
   In other words, your employer essentially takes a portion of your earnings and gives it to Uncle Sam before you actually file your income taxes. When you do your income taxes, you'll receive a W-2 that tells you how much they took out for taxes. If that amount is beyond what you actually owe Uncle Sam, then you'll get a refund. And this is exactly what many people do.
   
   So what's wrong with this? You lost the interest you would have earned on that money by putting it in the bank! You lost the interest savings from paying down your debt! And you lost money you could have used to shop for groceries and living expenses!
   
   Yes, it may seem nice to get a tax refund at the end. But it's your own money you got back! Money that was taken out ahead of time that Uncle Sam got interest on, not you! And money that you could have been using to rebuild your credit and dig yourself out of your financial hole. So you didn't win, you lost!
   
   By increasing the number of allowances on your W-4, you're telling your employer to give you more money and lower the amount sent to Uncle Sam. This way, you have the use of that money and can put it to good use. You can sock it away in the bank earning interest! Help paydown your debt and lower your interest costs!
   
   TIP: Don't use this as a license to spend!
   
   You don't want to get yourself right back into trouble by buying something you really don't need or can't afford. That is what may have gotten you into trouble before. In other words, don't revert back to your previous out-of-control lifestyle that dug yourself into a financial hole.
   
   So make sure this extra money is used wisely to help repair the financial damage and get yourself back on track to financial security. Splitting it and putting some in the bank (savings or CDs) and some towards debt repayment is a good idea.

Tips & Warnings

• Getting out of debt isn't easy and requires a lifestyle change
• Just remember you're not alone by a longshot! There are thousands of people in just as bad or even worse shape than you
• To get out of debt, you must take control of your expenses
• Learn to shift bad debt into good debt
• Increase your takehome pay by increasing allowances on your W-4
• Pass on higher credit card limits and more credit cards
• Getting out of debt doesn't happen overnight! It'll take time, but you'll get there