Keys to Getting Out of Debt

The keys to getting out of debt are being conscious of your income and expenditure, paying down the debt gradually, and saving some money to avoid having to borrow money to take care of an emergency. Getting out of debt is a process that requires financial discipline and lots of dedication.

Create a Budget

Many people get into, and remain in, debt because they are not aware of how much money flows in and out of their hands. Creating a budget is a good way to monitor your financial activities on a monthly basis. A budget can be a simple list of recurring monthly bills as well as of guaranteed monthy income (minus overtime). It will help you keep track of your monthly expenses and help you determine whether you are living above your means or not. It will also help you quickly see areas where you can cut back on your expenses.

Curb Unnecessary Spending

Although a little spending here and there may seem insignificant, it can actually add up at the end of the month and work to keep you in debt. Curbing unnecessary spending is a good way to begin practicing the financial discipline that is necessary for you to get out of debt. Unnecessary spending can be anything from buying a big ticket item that is not a necessity at the moment to making smaller purchases, like coffee or lunch, that quickly add up. The key to curbing unnecessary spending is curbing impulse buying. Some techniques for doing this include putting all the money that would have been spent on coffee or lunch in a jar and using it to pay down a bill at the end of the month, or waiting for a few days to make a purchase.

Set Up a Debt Payment Strategy

Crucial to getting out of debt is setting up a payment strategy that you can manage without straining yourself financially. One common mistake people make is to try to bite off too much of their debt at once. That results in their usually digging a bigger hole and getting into more debt. It is a good idea to determine how much you can allocate to debt reduction every month, figure out a payment plan (either begin with the card with the lowest balance or the highest interest rate), and then continue to allocate more funds as they free up to debt payment. Getting out of debt is a gradual process that requires patience and perseverence.

Save a Little

One of the keys to your getting out of debt is for you to make sure to avoid the situations that led to the debt in the first place. Most people get into debt because they do not have enough money saved for emergencies. Automatically saving as little as 10 percent of your income every month will ensure that you have the funds to take care of emergency expenses when they do arise. It might seem like a lot of money to save, but it makes more financial sense than borrowing with an interest rate later on.