How to Get Out of Debt

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By chasingthebull
User-Submitted Article

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There are many great plans available to help you get out of debt. The most effective plans are simple and easy to implement.

Difficulty: Moderate

Instructions

Things You'll Need:

Pen and paper

Step 1

Assess Your Situation - The first thing you need to do is to determine just how bad your debt problem is. Get out a pen and a piece of paper and write down ALL of your debt. Record everything, including the $5 that you owe your best friend. If you want to get out of debt, you need to get past your denial and truly acknowledge the situation.
Step 2

Crunch the Numbers - Now that you know how much debt you have, determine how much money you receive from income and other sources. Determine what percentage of your paycheck (or money) is being spent to repay your debts. Are you spending more than you make?
Step 3

Make a Plan - Many people are afraid of budgets. They see them as restrictions on their spendings. Instead, think of them as road maps to freedom. Prioritize the debts that you need to pay first. I would suggest paying the minimum amounts due on all of your debts EXCEPT for the smallest one. Attack this small debt with passion. Any extra money that you can scrap together, apply to this balance. Before long, this debt will be gone forever.
Step 4

Continue to Pay Off Your Debts (from smallest to largest) - By attacking the smallest debt, you achieve quick victories. This really increases your confidence and before long you will see progress. Once the smallest debt is paid completely, attack the second smallest debt (from your original list). For this debt you should pay what you were paying on the smallest debt PLUS the minimum amount of this debt. Any extra money that you find during the month should also be applied to this debt. Continue to pay the minimum amounts on the remaining debts.
Step 5

Stop Incurring New Debt - The last thing you want to do is to add more debt. Cut up all credit cards (except for one) including all convenience cards such as your SEARS card (or other department store), gas cards, etc.
Step 6

Redefine Necessity - What do you truly need to survive? Do you really need the latest iPhone, or do you merely want it? Do you need 10,000 minutes each month on your cell phone? Could you get by with 5,000? Ask yourself these types of questions and eliminate things you do not NEED. Once you get out of debt, you can add things back (provided that you pay for them in cash).
Step 7

Use Cash for Purchases - Use cash to pay for food, clothing, gas, and entertainment. Budget how much you need for these items and then go to the bank and get cash. Grab four envelopes and label them FOOD, CLOTHING, GAS, and ENTERTAINMENT. Put the budgeted amount into each envelope and spend as needed. Once the money from one envelope is empty, you are done for the month (or week, etc). Do not borrow money from the food envelope to go see a movie. That should come from the entertainment envelope.
Step 8

Reassess Your Situation - After a few weeks, reassess your situation and see how you are doing. Have you changed your spending habits? Are you still spending more than you make? Adjust your budget accordingly. It usually takes about 3 months to get it fine tuned and working properly.