How to Get Out of Debt 101

First Things First

Are you living paycheck to paycheck with never enough at the end of the week to get you through until the next paycheck comes? If that is the case, then there is one of two things happening here. You are living above your means (more going out than coming in) or you are laden with debt and most of your income is going to pay debt, which means you will never get ahead. Especially if you are charging more on your credit cards just to get through the week. So, the first thing to do is to figure out what category you fit into. Either way, things have to change or you will be stuck living paycheck to paycheck the rest of your life, with no chance or ideas of retirement.

What Comes Next?

Let me say that I am no financial expert or accountant or banker or anything else to do with the financial market. I simply know what has worked and is working for me and I am constantly crunching numbers. I feel I am best able to take care of my money, instead of someone else so I haven't used any type of ˜get out of debt "service to get to where I am. Am I debt free? No, I am not but I am well on my way to being there and thinking about retiring some day. I own a nice car (paid off in 1 year), I have a nice hot tub (paid off in less than a year) sitting on my deck, my house is close to being mine, I have rental property and can buy just about anything I want, within reason. Sound like something you'd like to do? Then cut up your credit cards! If you aren't disciplined enough to put them away and not use them until they are paid off, cut them up and return them to the issuing company.

I Still Have Debt

Yes, just cutting up your cards will not alleviate your debt and just cutting them up and throwing them away will not get the debt collectors off your back. Once you have made the decision to begin working toward eliminating debt, you need to gather up all your bills and sit down to calculate a debt to income ratio. No, I am not talking about some long, complicated formula, I am simply talking about how much you have going out compared to how much you have coming in. Figure up ALL bills and debt and then figure up ALL income and then subtract the two to find out if there is anything reasonable left over. Some people like to use a budget, but I am not one of those people. I tend to track almost every penny spent to see how it compares from year to year or month to month. We have little control over our monthly expenses, such as electricity, water, phone, etc. but we do have control over things like groceries, eating out, entertainment, etc. These are the things we can focus on to make a difference in our spending habits. Yes, we can turn down the thermostat or do away with long distance service or cut down on doing laundry, which will help some, but what I mean is we have little control over how much the utility companies charge for their service. When we go to the grocery store, we don't have to pay $5.99 a pound for the steak; instead we can buy the pork chops for $1.99 a pound and get the family pack at an even cheaper cost. We can stock up on items so we make fewer trips, which saves money and offers less chance of impulse buying. So, once you have figured out what your debt ratio is and how to cut back on a few costs, now we are ready to start cutting debt.

What next?

Figure out which bill you want to pay off first. Some "experts" say to knock out the highest interest, some say the longest payment, some say the lowest amount. It really doesn't make that much difference when you are overwhelmed with debt, being charged late fees and outlandish interest fees along with over limit fees and whatever other fees the credit card companies want to charge. You can try to reason with credit card companies but be careful with this. If they offer you a pay off and you accept, it will be reported against your credit score. Look into refinancing if you own your home. It could save you some money but be careful with this. If you consolidate your debt, it could cost you your home if you can't pay. Pick a bill you want to get out from under as quickly as possible and start attacking it. Keep in mind though, you have to keep up with the rest of your bills also (which is why debt reduction planners don't work), so make sure whatever bill you are attacking first leaves you enough left over to pay the rest of your bills. I get paid twice a month, which is hard. I tend to pay all my bills at the first of the month, which leaves me pretty broke, and then the middle of the month check is used almost exclusively to pay on what little debt I have left. This system has worked for me, but I can't speak for everyone. What I can speak for is a few dollars extra a month makes a big difference. If your house payment is $435, then pay $450. It won't take long to add up and soon you will see a difference. One last thing and we have heard this before. Paying only the minimum payment on your credit cards will draw a small amount out over years, not months so try to pay more than the minimum payment each time you make a payment, unless you are attacking your credit card debt one at a time. Believe me, once you get a handle on things, you will feel so much better.

What if I Still Don't Have Enough Money?

Get a part-time job. Working a full-time and part-time job is how I paid off the majority of my debt. I had to do it for about two years, but it has paid off in the end.