Having too much debt in your life is stressful. If the debt is substantial it can cause you to feel overwhelmed or hopeless about ever getting it under control. By acknowledging that you are in over your head with debt and deciding to take steps to take charge of your finances, you can begin to fix the problems and improve your situation.
Evaluate Your Debt
Get a complete picture of how much debt you have by creating a list. Write down every debt you owe -- whether it's a personal debt, revolving credit account or a car loan -- and the total outstanding for each one. Dig out all paperwork, bills and account statements to be sure you include every penny you must pay back and to verify the interest rates for each debt.
Income Versus Expenses
Create one list of all income you receive regularly and one list for all of your normal expenses. Income from your job, royalty payments, unemployment and any other source all apply. An available credit balance is not income. Expenses include your day-to-day bills, the minimum monthly payments on each of your debts and variable living expenses such as groceries and gasoline or bus fare.
Balance the Budget
Adjust spending as needed. If your total expenses are more than your total take-home income, cut back on unnecessary services such as cable TV or trim your entertainment spending until your income is equal to or more than your total expenses. This process can be difficult and it may need several adjustments as time goes on, but it a critical step in getting your debt under control.
Pay Off Debt
Pick one debt to pay off completely and start sending extra money in with the minimum payment each month. The one you choose can be the debt with the highest interest rate, the highest monthly payment or the lowest total amount due. According to Dave Ramsey, author of "The Total Money Makeover," paying off the debt with the smallest balance first gives you a big psychological boost that helps you maintain momentum with your payoff plan. Once you have one debt paid in full, you will have spare money that you used to send to the now paid-off bill. Apply the extra money to the next debt you'd like to pay off and continue this process until all debts are paid in full.
Do Not Add New Debt
Pledge to not add new debt. If you pay off a credit card and then go out and charge it up again, you are defeating your plan to get out of debt and ruining the budget you worked so hard to set. Agree to only spend money that you have from income that has already arrived and you will be able to avoid further debt problems.
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