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Step 1
Stop Incurring New Debt - For some unlucky people, debt problems are the result of major health issues or loss of employment. For the majority of us, any problems that we may have can basically be boiled down to one word - OVERSPENDING! The number one reason why you are having trouble getting out of debt is simply due to the fact that you keep adding to the debt you already have. Stop using credit now. You do not need it. Additionally, if you have given someone access to your account so that they can take payments from you automatically, have this stopped now. You will need every available dollar you have to help you become debt free.
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Step 2
Establish an Emergency Plan - Many people will try and tell you that you should pay off your debt first, before establishing an emergency fund. The main problem with this type of thinking arises when an emergency (i.e. broken leg, broken car, etc.) happens and you have zero cash to pay for it. The only option you are left with is using credit. This can be psychologically devastating. You have worked for months and months to reduce your debt only to see it right back where it came from. Use cash to pay for emergencies instead. Try and save $500 - $1,000 before starting step three.
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Step 3
Implement a Debt Snowball - This method was made popular by Dave Ramsey but I can remember my friend's parents attacking their debt in much the same way. Make a list of all of your debts from the smallest balance to the largest balance. Determine how much money you are able to apply to getting out of debt each month. Pay the minimum amounts on all of your debt EXCEPT for the debt with the smallest remaining balance. Attack this debt with every penny you can find. When this debt is completely eliminated, do not change the amount of money you are paying towards your debt. Instead attack the next smallest debt with all that you can. At the very least, you should be able to pay the minimum payment of the second debt AND the minimum payment of the smallest (now eliminated) debt. This is a key step in getting out of debt.
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Step 4
Record Your Spending - While steps 1 - 3 will help in getting out of debt, you should try and learn why you got there in the first place. This is where a spending journal really comes in handy. Grab an old notebook and carry it around with you everywhere. Anytime you spend any money on anything, write it in your journal. I take it a step further and explain WHY I bought what I did. At the end of the month, I review my spending and plan of course correction to get back on the path to becoming debt free.
Comments
maryellen1001 said
on 11/30/2008 Very sound, practical advice.
sunshine11219 said
on 11/25/2008 great advice and useful tips
MomWhoWrites said
on 11/25/2008 That is great advice! Thank you for sharing that.