Personal Finance: 6 Steps to Getting Out of Debt

Very few people realize the advantages of living debt free while they are young. Because of society’s bent toward buy today and pay tomorrow, almost everyone accepts that debt is a fact of life. It does not have to be. Saving up for purchases is not nearly as difficult when you are not still paying for yesterday’s spending. You can get out of debt.

Make a choice.

The question is: How do you want to live? Peer pressure, advertising that creates a perceived need, and the desire for convenience drive people to spend money that they do not have.

Mortgaging your future for current pleasure is not the best plan.

When you buy on credit, you are betting for enough income later to pay for today’s overspending. Not many people find this works in the long run. Eventually, almost everyone figures out that debt from the past damages your ability to thrive in the future.

Figure it out, now.

If you can make this realization today, you can remove a great deal of worry from tomorrow. It is a choice you have to make. Once you choose to get out of debt, the path to success becomes much clearer.

Confront the size of your debt and why it exists.

The second step is an honest evaluation of where you are financially. Add up your debt. This may be a very unpleasant exercise. You cannot arrive at a destination without knowing where you are going. Bringing your debt mountain down to size requires you to know how big the mountain is.

The next part of this step is to examine your spending habits.

Your spending choices caused your debt unless you had some type of unforeseeable catastrophe like a medical disaster. Even with a catastrophe, you need to control your spending to pay your way out of debt. Get a partner or your spouse to help you make spending decisions that avoid credit spending. Discipline yourself not to spend more than $25 per week on unbudgeted items without consulting with your partner first.

Negotiate any interest rate or debt amount that can be negotiated.

This third step may not work for everyone or every debt. Depending on your precise circumstances, your creditors may take a hard line. If you have been a reliable payer with few delinquencies, your creditors will bet in favor of your ability to pay without them making concessions. This is why many debt retirement companies will advise you to stop making your payments. They know that after 3 to 6 months many creditors will view you as a potential write-off. It softens them up for negotiating.

This process can be quite painful for you to endure if you have integrity.

The method for most people is to call up your creditors and ask for interest concessions or a settlement amount. If they say yes, you have saved some money. If they say no, you are no worse off.

Organize your debts from smallest to largest and quit making new debt.

It is time to get serious about moving forward. The fourth step is to begin putting together your debt retirement plan. By organizing your debts from small to large, you are building a roadmap to becoming debt free. This is the sequence that you will use to pay off your outstanding debt. You must stop making new debt from this point forward to maximize your chances of success.

Do fundraising to get rid of your smallest debt.

The fifth step is to actually eliminate one debt from your life. Pick on the little guy. It is the one that you are most likely be able to pay off the easiest. Use this one to give you incentive to push harder for more successes.

The best way to stay motivated is to see one debt pushed out the door.

If you can get rid of this one rapidly, you will catch the vision of dominoes falling. Sell some stuff or earn some extra cash to make this happen as quickly as possible. You can use that payment to ramp up the rate of repaying the next lowest debt.

Use a three-front attack to retire your remaining debt.

First, keep making all of your payments on time to avoid extra interest and fees. This will keep your larger debts going down as you work hard to repay the smaller ones. If this works well, your large debts may not seem very large by the time they are the smallest debt left in the stack.

Second, apply every spare penny to your debt that is the smallest one left.

As each debt goes away, use your resources to attack the next one. Treat the next smallest debt as a target. Aim all of your efforts toward it.

Finally, keep looking for more sources of income to accelerate the process.

Continue the fundraising efforts throughout the debt elimination project. Putting extra cash toward this debt increases the rate of its decline. By doing fundraising, it keeps your debt retirement in constant focus. When your goal stays in front of you, you are much more likely to achieve it.