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Debt Reduction

How To Get Out Of Debt In 5 Easy Steps

If you have an uncomfortable debt load there are most likely patterns in place that are causing them. Nearly every part of our lives whether it's health, relationships or finances are a result of our habits and patterns. Many times these patterns or habits are driven by our subconcious beliefs which make them difficult to change. However, once you are concious of the problem you can force pattern changes that your subconcious will accept over time. This will create new patterns which in turn will create new results.

Step #1 - Determine the source of your problem and write it down on a piece of paper.
  If you have chronic debt, you are either making less money than you need or spending excessively. Excessive spending may seem like an easier problem to solve than not enough income, but that may not necessarily be true. Since both are driven by subconcious programming they can be equally as hard to solve.

Step #2 - Write Down Why You Want To Get Out Of Debt.  It needs to be an emotionally compelling reason, otherwise you won't stick to the plan. Most people get out of debt because they realize how much money they are throwing away on interest or they get tired of constantly feeling financial pressure. For me it was both! I simply couldn't stand seeing all my money disappear every month.

Step #3 - Determine Where You Are.  Before you can plan your attack you have to know where you are at. Take a second sheet of paper and draw a line down the middle. Write your monthly income on the left side of the line and list all your monthly expenses on the right side of the line. Only list mandatory recurring expenses, such as your rent (or house payment), car payments, insurance payments, credit card and loan payments, phone bills, cable bill etc. Once you arrive at a number then you can determine how much money you have left for food, entertainment and other discretionary purchases.

Step #4 - Balance your budget at all cost!  If your income exceeds your mandatory expenses by a reasonable margin, then getting out of debt will be relatively easy. It will still require some sacrifice but at least you will have enough money to maintain your current residence and food requirements.

If your income is too low to comfortably cover your mandatory bills while still leaving you money for eating etc. then it will be time to make some more drastic decisions. Can you cut recurring discretionary expenses such as a cable bill? Can you reduce your phone plan? Can you eat out less by bringing a lunch and cooking at home? These are all areas I had to cut back in order to minimize my expenses.

Once you have squeezed out all the costs you can if you still aren't making it you either need to reduce your fixed expenses or increase your income. Can you move into a smaller home or apartment? Since rent / mortgage payments are one of our biggest expenses this may be an area where we have to make a sacrifice.

Step #5 - Earn Some Additional Income
  I picked up a part time job at UPS over the holidays one year and put every bit of that money toward my credit card bills. There are many types of part time jobs that one can do. Maybe you even have to consider a full time job change. I recently read the book How Starbucks Saved My Life    Memoirs)  and this is a book that many people need to read who are struggling with career changes. Many people who had good jobs in the past simply can't find the same type of job again and it's a tough adjustment.

About 18 months ago I started building Informational Web Sites in my spare time and have built my income up to about $1600 per month. If you enjoy writing it can definitely help you pay off debt and once your debt is gone it can become a full time job or simply your retirement plan!

Important: Once you have some extra money, make sure you use the debt reduction techniques and credit card payoff strategies outlined on this site.  Once you get the ball rolling and pay off the first couple debts, you will see that it starts to go faster and faster.  You will actually start to enjoy the challenge of seeing how fast you can pay down each debt.

In Summary:  The key is to determine where you are financially, figure out how you can balance your budget and if you can't you simply have to cut expenses or make extra money.  Once you have carved out some money to pay off debt make sure you use one of our systematic approaches to get out of debt as quickly as possible.