Eliminate Your Debts in 5 Years

Debt is one of the biggest causes of stress in life. If you're in debt, it's vital that you make a plan to pay it off within the next few years.

However, saying you want to pay off your debt and actually paying it off are two different things. If you're lost on where to start, take a step back and look at your overall financial picture. Once you have a handle on why you're in debt, you can make a plan to pay it off once and for all.

Make a Budget

Making a budget and sticking to it is one of the first things you should do when paying off debt. A budget gives you a plan for your money each month, so you'll know where your money is going and you won't have to tap in to your credit cards to pay your bills.

Creating a budget is not as hard as you may think. There are a million different ways to create a budget so you must find a method that works for you. A simple way to get started is to write down your current monthly income. Next, write down your monthly fixed expenses like rent, utilities and debt payments.

The remaining part is your variable expenses such as entertainment, restaurant meals and clothing. This is hard to estimate correctly so it's best to record all of your variable expenses for a month and calculate how much you're spending. From there, set a dollar limit for each variable expense each month and don't go over that amount. Finally, put the money that's left over each month into a savings account or toward debt.

Earn More Money

After completing your budget, you might find that you're spending more money than you're making each month. You have to find a way to make up that shortfall without using your credit cards.

The best way to make up the gap between income and expenses is to earn extra income. You can pick up a part-time job during the evenings and weekends, work overtime at your full-time job, do freelance work for clients at home, sell crafts or even do odd jobs such as babysitting or yard work.

You might be tempted to spend this extra money, but it's important to stick to your budget and use all of the proceeds from your extra work to pay off debt and increase your savings account balance.

Create a Payoff Plan

Paying off debt requires planning. You can't expect to pay debt off by simply making the minimum payments each month. Instead, you need to decide on a debt payoff plan that works for you.

Many reformed debtors found success with the debt snowball method of repayment. This method focuses on paying off the smallest or highest interest rate debt first. You focus all of your energy and extra money toward paying off that debt before moving onto the next debt. Eventually, you'll be able to put more and more money toward eliminating your remaining debt.

Think About the Future

Once you pay off your debts, it's important to keep it from happening again. The best way to do this is to prepare for the unexpected expenses that happen in life.

A good rule of thumb for future financial planning is to save at least six months of your salary in an emergency fund. This money shouldn't be touched unless it's absolutely necessary, such as in times of job loss or incredible financial difficulty.

Planning for your retirement is also a good idea. Make sure you're contributing the maximum amount to any employer-matched 401k or pension accounts at your job. Also, make sure you have enough health insurance and consider taking out a life insurance policy if you have a family.