How to Get Out of Debt Ridiculously Fast

Too much debt? Find out how to pay it off and keep it off.

Difficulty: Easy

Instructions

Things You'll Need:

• 30 minutes
• Paper and Pencil or spreadsheet software

1. Analyze your earning and spending habits.
   
   The first step to getting out of debt is making a budget. Most people that get into trouble with debt do so because they are not aware of how much money they make, and where it all goes each month. Making a budget will bring your financial picture into perspective. Once you see the big picture, you can start making the adjustments necessary to get you back on the right track.

2. Analyze your income.
   
   Take a look at how much money your household brings in each month. Go back through your bank records for at least 3 months, and determine an average.

3. Analyze your debt.
   
   Take a look at how much money your household spends each month. Go back through your bank records for at least 3 months, and determine an average.
   
   This list will help you get started:
   
   EXPENSES:
   HOME:
   Mortgage or Rent
   Homeowners/Renters Insurance
   Property Taxes
   Home Repairs/Maintenance/HOA Dues
   Home Improvements
   UTILITIES:
   Electricity
   Water and Sewer
   Natural Gas or Oil
   Telephone (Land Line, Cell)
   FOOD:
   Groceries
   Eating Out, Lunches, Snacks
   FAMILY OBLIGATIONS:
   Child Support
   Alimony
   Day Care, Babysitting
   HEALTH AND MEDICAL:
   Insurance (medical,dental,vision)
   Unreimbursed Medical Expenses, Copays
   Fitness (Yoga,Massage,Gym)
   TRANSPORTATION:
   Car Payments
   Gasoline/Oil
   Auto Repairs/Maintenance/Fees
   Auto Insurance
   Other Transportation (tolls, bus, subway, taxis)
   DEBT PAYMENTS:
   Credit Cards
   Student Loans
   Other Loans
   ENTERTAINMENT/RECREATION:
   Cable TV/Videos/Movies
   Computer Expense
   Hobbies
   Subscriptions and Dues
   Vacations
   PETS:
   Food
   Grooming, Boarding, Vet
   CLOTHING:
   INVESTMENTS AND SAVINGS:
   401(K)or IRA
   Stocks/Bonds/Mutual Funds
   College Fund
   Savings
   Emergency Fund
   MISCELLANEOUS:
   Toiletries, Household Products
   Gifts/Donations
   Grooming (Hair, Make-up, Other)
   Miscellaneous Expense

4. List out your debts.
   
   Write up a list of your debts. Arrange them in order from smallest debt balance to largest. Be sure to list your monthly payment amounts and interest rates too.

5. Determine a debt payment schedule. (Debt Snowball)
   
   As an example, we use the following budget data:
   
   Total Monthly Income: $4,000
   Total Monthly Expenses: $3,500
   Debts: Credit Card 1 - $500, Credit Card 2 - $3,500, Car - $10,000, House $90,000
   
   In this example, we have a $500 surplus each month (Income - Expenses = Surplus). In the first month, we can pay off the first credit card.
   
   In the second month, we can take the $50 credit card payment we were paying on Credit Card 1 and apply it to credit card 2, so our new surplus is $550, and in month two we can pay down credit card 2 to $2,950.
   
   Repeat this pattern until all debts are gone.

Tips & Warnings

• Don't give up. Do this for a few months and it gets exciting seeing your debt shrink.
• Another method, that may save even more money, is to pay down your debts with the highest interest rate first. This saves more money, but psychologically it may seem like a slower process for most people. That's why I recommend paying down the lowest debt balances first.