Things You'll Need:
- Pen and paper or computer
- Copies of financial statements (i.e. credit card bills, student loan statements, medical bills, etc.)
- Calculator
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Step 1
The very first thing you will need to do is to admit that you have a debt problem and that you are finally ready to deal with it. Until you can acknowledge that your debt is out of control and you are ready to take responsibility for it, no debt elimination plan is going to work for you.
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Step 2
Once you've gotten serious about eliminating your debt, you will need to take a good hard look at your debt, your spending, and your income. Gather all of your bills including credit card statements, medical bills, student loans statements, car loans, bank loans, etc. Put these in one pile and in another pile, put your bank account statements for the last three months if you have them. In a third pile, put your pay stubs for the same time period.
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Step 3
Now you need to figure out exactly what you owe, who you owe it to, and at what interest rate. Group your debts according to category (i.e. credit card, student loan, auto loan) and list them from lowest balance to highest along with the corresponding interest rate. Add up the totals from each category to figure out what your total debt is.
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Step 4
Take a deep breath now if you need it. The actual number staring back at you may be very small or it may be five or even six figures. Do not panic. Just remember, you are not the first or the last person to get into this mess. Now you have to find a way out of it.
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Step 5
Now you will want to look at your credit card and bank statements to see where you've been spending your money. You will see purchases here that you don't remember or that seemed absolutely crucial at the time. Don't be ashamed. Acknowledging that you've been reckless with your money in the past will allow you to be more careful with it in the future.
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Step 6
Once you know what you owe and where your money is going each month, you will need to have an accurate idea of what is coming in as well. If your pay is consistently the same month to month or week to week, then figuring this out will be fairly simple. If your income varies, you may want to figure up an average monthly income based on your pay stubs. Once you know how much income you're working with, it will be much easier to create a budget.
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Step 7
Now, you will need to decide which debts you want to pay off first. Most people will tell you to pay off the highest interest debt first since it's costing you the most money. Others will tell you to pay off the lowest balances first, since having fewer debts will be more motivating. Whichever route you choose, you will need to figure out what the minimum monthly payments are for each account. Then choose one debt and apply extra money to it each month. How much will depend on your individual budget but it's best to do as much as you are comfortable with. Once the debt is paid off, take that payment and apply it to the next debt on your list. This is called a debt snowball.
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Step 8
Once you've got your snowball rolling, the important thing is to keep it going. You will get tired of paying your money to someone else each month for things you bought months or even years ago. The key is to remember that there is a light at the end of the tunnel. Once you are debt-free, your money will truly be your money.
