20 Jun 6 Simple Steps to Get out of Debt
Getting out of debt can seem like an overwhelming task. Maybe you’re making minimum payments each month, but it just seems like you’re spinning your wheels and not going anywhere. If you feel like you’re not making any progress in reducing personal debt, then you’re probably not doing enough to actually impact your debt balances.
You may have questions about how to best get out of debt. If you only pay the minimum payments, how long will it take to get out of debt? Should you concentrate on just one debt at a time or attack them all at once? Will you have to give up everything fun in order to get out of debt?
If you’re serious about getting out of debt but you’re not sure where to start, we’ve outlined six simple steps to help you get out of debt below.
Step #1 – Figure out how you got into debt.
This isn’t a fun thing to do, but it’s critical so that you don’t repeat the same mistakes and end up in debt again. You must be honest with yourself about which actions and decisions caused you to rack up the debt. Write down some of the things you did that got you into debt, and then commit to avoid those things in the future.
Realize that sometimes debt isn’t your fault, especially if you were sick and acquired medical bills or if you went through a divorce. This isn’t about making you feel guilty for being in debt; it’s about understanding how you got to this place so you can keep it from happening again.
Step #2 – Change how you spend your money.
This isn’t super fun either, but you have to get real with yourself. The truth is, debt doesn’t just happen. Debt happens when you spend more than you’re making. Debt happens because of overspending. Maybe at the time you felt the expense was legitimate, but now those choices are hurting your financial future, right?
In order to gauge your expenses, track every penny you spend for a month. Then categorize them (housing, food, gas, utilities, insurance, etc.) and see where your money is going. If it seems like too much money is going toward a particular category, consider ways to reduce the amount of money you’re spending there. If you’re not sure how much money should be going to each category, click here to get an idea.
It’s not easy to change how you spend your money, but it’s a necessary step to help you get out of debt.
Step #3 – Calculate your total debt.
You can’t take down your debt unless you really know how much debt you have. This may be a little scary at first, but just remember, you’re taking steps now to make this number go down. Let this number motivate you even more.
Get out a piece of paper or use your computer to list each debt, how much you owe, what the interest rate is, and the monthly minimum payment. You may even want to get a copy of your credit report to make sure you don’t miss anything.
Step #4 – Put together a plan.
As the saying goes, if you fail to plan, you plan to fail. Without a plan in place, getting out of debt is just a nice wish and probably won’t actually happen.
> Review your budget. Take a close look at your budget, and see what your true expenses are. Once those are all taken care of, how much money do you have left?
> Use the money you have left after paying all your bills to make extra debt payments. The only way you’ll get out of debt in a decent amount of time is if your payments are more than the minimum due.
> Decide if you want to snowball your debt or get rid of the biggest debt (or highest interest debt) first. Some people want to go for the big one first so they feel like they’re really making progress (debt avalanche). Others feel like knocking out the smaller debts first helps them feel like they are really making headway (debt snowball). You decide which strategy would work best for your situation. Whichever you choose, make sure that it motivates you!
> If you get a bonus or tax refund, consider dumping that on your debt to decrease the amount of time it will take to eliminate your debt.
> Think of ways to increase your income or decrease your spending so you can get out of debt even faster.
Step #5 – Stick to the plan.
Again, this is not fun stuff. You need to discipline yourself to stick to your plan. That means saying “no” to things you want (which is saying “yes” to getting out of debt).
Remember, you didn’t get into debt overnight, and you aren’t going to fix it overnight either. You need to have a realistic expectation of how long it will take to completely wipe out your debt. This site has some great tools for helping you calculate how long it will take you to knock out your debt based on your interest rate and other factors.
Step #6 – Stop going more in debt.
This is a big one. Imagine yourself in a sinking boat. You’re bailing water the best you can, but you’re still sinking because you haven’t patched the hole in the boat yet. You need to stop going more into debt (patch the hole) so that you can boil water (pay off debts) and not sink.
Get serious. Cut up the credit cards. Commit to yourself and your spouse (if you have one) that you will not spend money you don’t have.
Understand that there will be discouraging times on this journey of getting out of debt, and it is a journey, not a sprint. Rather than focusing on how far you have to go, think about the progress you’re making. Resist comparing yourself to others. If you feel like quitting because it seems like everyone else has their financial act together and you don’t, just remember that someday you will be the one with your act together. Make a list of reasons why you want to get out of debt and look at them often. When you knock out one of your debts, celebrate! And then keep going. It will be worth it!
