Getting out of debt is like losing weight. Sometimes there's a magic solution, but usually it's a slow process requiring honest self-examination and self-discipline. Most people wind up in debt because of thought processes or habits they aren't even aware of. Changing those is the biggest challenge to getting out of debt.
How You See Money
Maybe you grew up poor and can't stand to be without. Maybe you grew up believing discounted merchandise was inferior. Maybe you mentally spend two dollars for every one that comes in. Examine how your views on money and spending landed you in debt. Then chuck expensive thought patterns. If you shop to boost your mood on a bad day, for example, go to the dollar store instead of the mall.
Taking the Hard Look
Take a deep breath, sit down with a nice snack, and record the real numbers on your income and expenses -- no fudging. Figure out what you actually need to live on, including rent or mortgage, food, insurance, health care and education. Money left over is your debt reduction stash. Then, write down exactly how much you owe, to whom, and their interest charges.
Trim the Fat
Trimming the fat might mean cutting out premium cable and daily gourmet coffee shop runs. Or, if you have no cable and never can afford pricey coffee, it might mean planning meals around grocery store loss leaders -- items deeply discounted to draw customers. It might mean shaving dollars off your utility bill by turning off lights and lowering the thermostat. Whatever your financial situation, there's probably at least a little fat you could add to your debt-reduction stash.
Contact Creditors
Once you have determined what you can reliably spend on debt reduction each month, call each creditor and tell them you are having trouble staying on top of your bills. Work out a payment arrangement with each one. This will keep them from sending the debt to collection agencies and may spare you extra fees. Many creditors prefer small payments to writing off big debts. Still, it is painful. Creditors may stop your future spending until you get your debt paid off. They may pressure or even try to shame you to pay more. Stick to your guns. When the painful phone call ends, you will have a livable plan for paying off debts. As you pay off one debt, roll the extra money into paying off the next.
No Silver Bullet
Look for hidden money you could use to reduce debt. That could be something you own -- a boat you rarely use, for example. It could be spare time you could use for part-time work. It should be something easily converted to cash. Downsizing on a house may take too long. Additionally, most debt consolidation plans, while promising to be silver bullets, will actually shoot you in the foot, according to the FTC, Smartmoney.com and other sources.
Carefully Track Expenses
Track where your money goes. Write down every item you spend money on for at least a month. Look at your balances daily and see if you're at risk of overextending.
Stay Motivated
Write down items you will have when the debt is gone -- peace of mind, for example. Pay attention to how each debt shrinks each month. Read books and inspirational stories that pop up on the Internet, or watch movies about people who recovered from serious debt to help you stay inspired. How you think about getting out of debt will be the greatest factor in your success.
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