How to Get Out of Debt: A Step-by-Step Guide
Find Out How Much Debt You Owe
You can’t develop a debt payment strategy until you know exactly what you’re up against.
It’s time to mentally gather up all your debts – from that $40 store credit card balance to your $30,000 car loan – and put it all in one place.
Write down the debts you have, how much you owe on each, the interest rate, and the minimum payment.
If you aren’t sure about the interest rate, take the time to open your accounts and find the exact number. High-interest rate debt is a bigger drag on your success than low-interest debt, so you need to know which is which.
Choose Your Approach
Once you know exactly how much you owe, it’s time to put a plan together for how you’re going to get out of debt.
Throwing money at a different debt every month, without tracking your progress, is a surefire way for burnout. You’ll feel like you’re spinning your wheels and give up too soon.
The best way to pay down debt is to focus on one piece of debt at a time until that one debt is entirely paid off. In the meantime, make only minimum payments on the other debts.
Make Some Big Changes
While small, day-to-day changes matter, a few big changes can fast track you to getting out of debt. Consider these ideas and decide whether the expense they represent is truly worth it to you.
Get Rid of Your Credit Cards
Are credit cards burning a hole in your pocket? It may be time to cut them up.
If credit card debt is part of your problem, sticking to cash and debit cards can help you reset your spending mindset. Nothing is more discouraging when you’re paying off debt than realizing you increased it accidentally with an impulse credit card purchase.
Create a Monthly Budget
Want to know how much you can put towards debt each month? You’re going to need a budget.
A reasonable budget helps you understand where your money is going. It alerts you to where cash is leaking out to things that don’t really matter to you. And it clues you in on how much you can afford for the things you do want.
Create categories for regular expenses and assign reasonable spending limits to each item.
Don’t be afraid to have many budget categories. It will help you have a greater understanding of where things are going. Some regular expenses include internet, cell phone, household goods, medical costs, pets, haircuts, car repair, and home repair. Not every item will have an expense every month, but by setting some money aside for those irregular expenses, you’ll be ready when they hit.