How to Get Out of Debt in 5-7 Years

Getting rid of your debt and staying debt-free will give you such peace you will never want to be a slave to these types of bills again. You do not have to pay a financial counselor to be able to become debt-free in five to seven years. There are common-sense steps you can do that will enable you to dig out of this hole on your own. The keys are patience, consistency, determination and to write your goals down.

Instructions

1

Begin by tracking your money. Write down every penny that comes into the household for one month. Also, write down every penny that you and your loved ones spend. Remember to jot down allowances for bills you pay semi-annually or quarterly, such as insurance payments and budget that amount in every month. Make a list of the financial goals you want to accomplish, and track the growth every month.

2

Make a budget for everyone in the home. Allow enough money for necessary expenses and then a small amount of money for each member to spend freely. When they have extra money to buy something they really want--as opposed to something they need--they can either use it each month, or save for an even larger luxury. Make everyone accountable for his expenditures and stick to the budget no matter what.

3

Cut expenses everywhere you possibly can. Make your own lunches and snacks for work or travel. Avoid restaurants and fast food, except on very special occasions. One meal at a nice restaurant will eat up almost half the amount of money it takes to prepare meals at home for a week. Clip coupons and use them only for items you would have purchased anyway. Eliminate cable TV and extra phone lines. Fill in your family's free hours by playing board games and doing outdoor activities together. This will definitely create more loving memories than if your family time is spent in front of the TV. You will be amazed at how quickly you can build wealth by saving a few pennies or dollars each day.

4

Save up for emergencies. The daveramsey.com website recommends that you save at least $1,000 in an easily accessible account, such as a money market fund. This savings account is to be used only for emergencies. A true emergency is car troubles; going out to eat at a nice restaurant with friends is not.

5

Pay off your credit cards. This may seem to be an impossible task, but it can be done and quickly. Start by making the least amount of payments you can each month on every credit card. The statement will list a minimum payment required, and this is what you must pay. Choose which card has the lowest balance and spend every extra penny on bringing down this balance. It should only take a few months to wipe this one out, and then you can use that money you do not have to pay on this credit card each month to pay even more on the second highest credit card balance. Keep doing this until they are all paid off. The rewards and points you get on these cards do not benefit you nearly as much as the interest you save by not having a payment.

6

Begin building a savings that will cover three to six months of living expenses once you have paid off the credit cards. No one is exempt from troubles, especially in this economy. Lay offs, job terminations, illnesses and accidents can all result in financial difficulties that can wipe you out financially and send you on the path to bankruptcy. Do not touch this fund for minor emergencies--that is why you have the $1,000 in the money market account.

7

Start building a retirement fund or invest in a Roth IRA. After building your three- to six-month savings, you can build the retirement fund by investing at least 15 percent each month. If you are lucky, old age will catch up with you and you want to be worry-free financially when you reach the golden years.

8

Sink money into a fund to pay for college expenses for your children. If you are lucky enough to be able to start this while they are in elementary school or even earlier, the money will grow rapidly. Learn about the 529 plans and Education Savings Accounts; you can invest your money in those tax-free.

9

Realize that once you have gotten these last steps started that it is time to make double and triple payments on your mortgage. If you cannot make double payments, pay as much extra as you possibly can. Remember, you have your two emergency funds already full if an unexpected life event occurs. You can now afford to get rid of your biggest payment of all. Most people can easily eliminate credit card debt within one or two years of starting this plan, and paying off your house within five to seven years is also possible. You do not hear of this often because people do not want to scrimp and save for a few years to accomplish this, but can you imagine the wonderful satisfaction and peace you will feel to know that you do not have this payment?