As anyone who has ever struggled with debt will tell you, getting into debt is easy. Getting out, on the other hand, is a challenge, requiring you to be honest about your situation and make changes to get your finances under control. Although facing a mountain of debt can be intimidating, becoming debt-free gets easier when you take your goal one step at a time.
Study Your Financial Affairs
Look at how much debt you have and how much it's costing you each month to pay it off. List all of your debts, including the amount owed and the interest rate. Next, track your monthly spending so that you understand where your money's going. If you regularly overspend and rely on your credit cards, it's time to make some changes. Consider where you can make cuts to your monthly spending to save a few bucks. Financial guru Gail Vaz-Oxlade recommends that you don't spend as much on eating out, for example. Buying food and cooking at home is much cheaper than heading out to a restaurant.
Make a Budget and Stick to It
After evaluating your situation make a monthly budget and stick to it. Vaz-Oxlade suggests dividing your income as follows among your expenses: 35 percent for housing, 15 percent for debt repayment, 15 percent for transportation costs, 10 percent for savings and 25 percent for the rest of life's costs, including food, entertainment, clothing and gifts. Stop using credit and debit cards, at least temporarily, so you don't get tempted to splurge as you get used to your new lifestyle. Don't think that just because you're cutting down on your spending you can never get the things you want. You just need to save for them. For example, if you want to take a trip, start putting away some of your "life" money for your vacation. Finding extra income can help you pay down your debt faster. Consider taking on overtime at the office, working a second job in the evenings or using freelancing skills like writing and Web design to boost your monthly income.
Lower Interest Rates
Call your credit card companies and negotiate lower interest rates. Money coach Lynne Kahlfani, interviewed in an article for "Chatelaine" magazine, suggests calling and politely pointing out that you've been a loyal customer for years, but you've been offered a card with a lower rate. Ask if the company would be willing to lower its rate to keep you as a customer. Next, move your higher-interest debt over to lower-interest cards and lines of credit. If your credit rating is intact, you might be able to get a low-interest consolidation loan from your financial institution. Throw all of your debt repayment dollars at the card or line of credit with the highest interest rate, paying it down every month until you've managed to wipe it out. Repeat with the debt bearing the next highest interest rate.
Change How You Think About Debt
As an article on Yahoo! Money points out, not all debt is bad. A little bit of debt is good if you'll get more out of your borrowing later. For example, it's OK to partially finance a home or a post-secondary education with debt because of the future returns these purchases promise. Don't use debt to pay for meals, entertainment or trips. See credit cards as a direct link to your cash. Never spend more than you can afford to pay back in full each month.
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