Get Out of Debt

The current economy and the amount of debt that has been acquired are greatly related to people living beyond their means. Sometimes it is a medical emergency or a sudden job loss that speeds up the amount of debt that a person has. Regardless of how you got where you are, the question on your mind is How do I get out of debt?

To be absolutely clear there are a variety of ways to get out of debt, however, there are certain ways to accomplish it and stay out of debt. The first thing that needs to be done is to acknowledge what the state of your finances are in regards to income, outflow and debt owed. Without establishing this base set of numbers you can’t proceed any further.

Change your mindset. Your money habits are a reflection of what is important to you or what you have been trained to believe about money. The word “debt” triggers different things for different people. You have to retrain your thought process and stop believing that money is an evil thing and start looking at it as a tool to be used to help you have a good life.

Know where your money goes. You cannot answer the question “How do I get out of debt?” if you don’t have an accurate picture of how much you spend and where. Look back over your bank statements for the past three months. Document how much money goes to gas, power, entertainment, eating out at restaurants and even the bank fees. If you take out cash and don’t know where it goes then start writing down what you spent it on.

Control your spending. Try an experiment of spending only on essentials for the next 30 days. This means paying only gas, power, mortgage/rent, credit card bills, etc. Do not buy magazines, books, clothing, or eat at restaurants. This is only for 30 days. You are going to see how much money you have at the end of the month.

If you have already cut out excess spending on entertainment and the latest DVD it is time to make additional spending cuts. These don’t have to be big. Take a look at your daily trip to the coffee shop or that snack from the gas station every time you fill up your gas tank. Try making coffee at home and purchasing a washable cup to carry in the car. Pack snacks in the morning if you are always grabbing something on the run.

Now that you have some extra cash you are ready to take steps towards the “How do I get out of debt?” question. Start out by putting money into a savings account for an emergency fund. The goal is to get up to $1000 in the savings account in order to stave off the inevitable medical bill or car repair that will derail your efforts to get out of debt.

While you are saving you need to make a list of all of your credit cards and loans and the total amount owed. You will want to start paying them off one at a time. There are two methods that are used for this. One is to pay off the card with the highest interest rate first and then work your way down. The second option is to pay off the smallest cards first and work your way up to the one with the highest amount. Whichever way you choose is a step in the right direction. Having a plan will help you ease the constant stress of wondering “How do I get out of debt?”. This will give you a more positive outlook and help eliminate financial stress.