Recent economic upheavals have contributed to the increase in debt for many people. It seems like an impossible dream to get out of debt, but it is possible. There are many get-out-of-debt plans and even more advice givers. One thing most of them have in common is a clear emphasis on hard work and strict budgeting.
Establish a Plan
No matter which plan you go with, or even if you develop your own method, the first step is to look at the numbers. Just how much debt are you in? How much income do you really have, and how much additional income can you bring in? List your current expenses, including food and entertainment, and decide what can be eliminated.
Once the numbers are all out in front of you, it's time to create a plan. Decide which debts you wish to pay off, if not all of them, and which ones you want to pay off first. Many advisers suggest paying the ones that have the smallest balance first or the ones with the highest interest. Paying smaller balances off first can speed up the satisfaction of paying off debt, while paying higher interest first will speed up the overall process and get you out of debt faster. Or you could do a mix of the two strategies.
Pay Off Debt in Steps
Begin paying off your debt with your next paycheck. An effective method is to use a debt snowball or avalanche. After paying the minimum balance on each debt each month, apply any extra money from your income to just one debt---the debt you have decided to pay off first.
It may take just a few payments or it may take many payments, but when your first debt is fully paid off, apply your extra portion plus the minimum payment amount of the first debt that you just paid off to the payment of the second debt on your list. With this method, your debt payments remain the same throughout the debt process, even as the number of debts becomes smaller. At the same time, your snowball payment becomes larger with each paid-off debt. Over time you may find that you can pay off a balance in one payment.
Change Your Habits
An important part of getting out of debt is resisting the draw to get back into debt. Whether you wish to live totally debt-free or maintain a responsible amount of credit, you will need to change the habits that got you into deep debt. If you choose to keep a few credit cards, use them only for purchases that you will pay off with the monthly payment. Do not carry a balance from month to month.
Establish an emergency fund to depend on rather than turning to credit in times of financial need. Start with a small fund, about $1,000, with the long-term goal to have a full six months of expenses saved.
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