How to Get Out of Debt

Debt is a major problem for a lot of people nowadays. Getting out of debt and staying out of debt is not easy. Chances are, you’re reading this article because you've already amassed a fair amount of debt and you have no way out. However, as hard as it may seem to pull you out of a ton of old loans, it is possible. The guidelines on this article will lead you through the necessary steps to become debt-free and live that way.

Disclaimer: I’m not a financial adviser, and if you are in need of one, I suggest you find a qualified adviser. This article is based on my observations, and on the large number websites I’ve read.

Acknowledge the problem: The initial step is admitting you have a problem. The main reason might probably be because you spend money you don’t have. Set aside and strictly follow some time or day to fully deal with your finances. Collect all the bills you receive in one month. (Don't forget any payments you make online or that are automatically deducted from your account.) And add them up.

Stop increasing your debt: Once you have owned up to your problem, don’t aggravate it further. For the next one month, stop any gratuitous spending. Apparently your bills, housing, food and the like are essential. New clothes, entertainment, electronics are some of the things you don’t need. After one month, you will have a clear picture of how much you can save and what you inevitably need.

Make small cutbacks: Take a gaze at things you normally buy and see if you can cut out a few of them, or spend less on them. You can buy groceries at a local shop instead of going to the mall, make coffee at home instead of buying out, packing lunch to work instead of eating out, using public transport instead of driving etc. Your cutbacks should save you a great deal of cash, at list enough if you’re badly strapped in debts.

Start an emergency fund: By the fourth week, set up a savings account, if you don’t have one already, for an emergency fund. Now take the amount you saved through cutbacks and deposit them in your new account. The reason is if unexpected expenses come up, and you don’t have an emergency fund, you will skip your debt payments to pay for the unexpected expenses. The emergency fund protects your debt payments.

Take record: List all your debts and the amounts you owe for each debt. Also note the minimum monthly payment and any interest your debts accrue monthly. Come up with a total of what you have to pay, at a minimum, towards debt each month.

Make a spending plan: List your monthly bills (rent or mortgage, auto payment, utilities etc) — everything that is a regular monthly expense. Then list variable expenses (things that change every month) like groceries and note the amounts for each. Be sure to put an adequate amount for essentials like food. Be sure to also include your minimum debt payments and your emergency fund deposit. Then list your income sources and monthly amounts. You now have a temporary spending plan. If the expenses are greater than the income, you’ll need to make adjustments until the expenses are equal to or less than the income.

Control spending: Continue to cut back on non-essential spending as much as you can at this point, so you’re able to stick within your spending plan.

Pay bills on time: It’s important, if you want to get out of debt, start paying all your bills on time and make it a habit. To rule out chances of forgetting payments, pay bills as soon as they come in or set up a reminder in your calendar program to tell you when bills are due.

Start a debt snowball: By now you should have your finances under relative control. You should have the beginnings of an emergency fund, you should know how much you owe, you should have a temporary spending plan, and you should be paying bills on time and controlling your spending. Now you can focus on paying your debt. Here’s what to do: Save some money from your spending plan and use it to start your debt snowball. First, order the debts from the smallest amount owed to the largest and pay them in the same order until they are all paid off. You will now have a large sum you can put into growing your emergency fund, and funding your irregular expenses, and finally start investing.

Find larger cuts: Once you’ve controlled your finances and started your debt snowball, there are ways to increase the snowball — and hence the speed with which you get out of debt. Can you cut on your rent? Can you get by with public transport instead of driving? Can you eliminate some services you’ve been using? Whatever cuts you make, apply that amount to your debt snowball — don’t spend it.

Grow your income: Another great way to get out of debt faster is to make more money. Look at ways you can make money on the side — or ask for a raise or get a better job. This only has to be temporary, but the more money you make, the faster you’ll get out of debt. Be sure to apply your new income to your debt snowball.

Track your progress: Update your debt amount after every payday and note how fast it is shrinking. You should be able to calculate how many months you have left before you’re completely out of debt. It may be a long way off, but it’s within prospect!

I don’t absolutely guarantee you the guidelines stated above will shift you to riches and comfort overnight. Paying debts is a slow process and you will be expected to exercise patience and discipline, and by discipline I mean abiding by the spending rules you set. All the best.

Lloyd (