How to Get Out of Debt

10 Steps to a Debt Free Life

Carrying debt creates stress, especially when large amounts have been accrued over the years. Debt has a way of creeping up on you, rather than coming from one or two large expenses. Regardless of whether it came from a year of unemployment, a sick family member or overspending, a conscious effort must be made to eliminate debt, or it will remain a burden. Many have lost hope of ever being able to live a debt free life.

This step by step strategy will help you get organized, set obtainable goals, and implement the plan to become debt free. For everyone there is hope and success can be yours.

Step 1: Stop increasing your debt. A major challenge with family finances is stopping the leaks in spending that have led to high amounts of debt. One of the most effective ways to stop increasing debt is to operate with a cash only budget. Paying with cash will result in an increased awareness of how much you are spending on what and has been known to reduce monthly spending by up to 20%.

Step 2: Assess your current situation by tracking spending for 30 days. While this may seem tedious it is the centerpiece for any debt reduction plan. How can you improve your finances if you don’t know how much is spent each month? Tracking spending will bring to light the total cost of living and how to prioritize expenses. It will also help evaluate where savings can be found.

A good place to start is with a free copy of your credit report at you’re your credit score. This will help you create a list of all debts. On your list of all your debts to include: who the debtor is, how much is owed, interest rate and minimum payment due. Don’t forget to include quarterly and annual bills that come due.

Step 3: Review spending patterns and divide expenses between essential bills (like mortgage and power) and the discretionary spending (like clothing and entertainment).

Step 4: Review income and look for ways to increase it. How much do you have coming in each month compared to what is going out? Does the income fluctuate each month? What expenses fluctuate? Is the number at the end positive or negative? A negative number indicates you are increasing your debt each month to pay all your expenses. A positive number means you have extra to build savings and pay down debt.

Income can be increased through a second job, freelance work, side jobs, or selling things you no longer use. One painless way to increase income is to evaluate your w-4 withholding. If you received a refund in the previous tax year, you can increase with holdings and end up with more cash in each paycheck. When you get a refund, you have given the IRS an interest free loan. Putting more in your paycheck can be put to good use if it is advancing your goal to live a debt free life.

Step 5: Trim the fat. Closely look at spending and determine ways to cut back. Often it is the little things that add up. There are a 101 ways to reduce costs. The key to success is to cut back a little in a lot of areas. If you try to eliminate every extra expense you will not be able to keep it up and make a lifestyle change. For more specific ideas on trimming spending see

Step 6: Build an emergency fund. One of the challenges with debt reduction is that unexpected expenses always come up. If you don’t set aside a little each month to build up savings, you will incur new debt every time an unexpected expense occurs. To learn more about ways to quickly get some extra cash visit

Step 7: Establish a budget and stick to it. A successful budget is a realistic budget. Set goals that are both achievable and measurable. Track spending each week to determine if you are on track or not. This allows you take immediate steps to correct overspending. Once good habits are established it can be monitored less frequently.

When it comes to a budget think long term. Just as crash diets do not work, crash spending plans don’t either. When you change spending patterns, living a debt free life will soon become a reality.

During the period of paying down debt, take additional funds received and put it towards paying creditors. This period of time will be one of sacrifice, but it will be worth it in the end. You may have to forgo vacations and entertainment for a short time in order to stick with your plan.

Step 8: Lower payments. One of the fastest ways to lower payments is to call creditors and ask them to lower your interest rate. If you have paid the bill on time, many creditors will lower the rate. Even a few points in interest will result in big savings.

Another way to lower payments may include consolidating debts. See for more specifics on benefits and qualifications. If you have student loans you might be able to consolidate the loans, extend the payments or move to an income based repayment structure. All of which can reduce monthly expenses.

Step 9: Look at repayment options. If you have enough income (or can reduce monthly expenses or increase income) then you have two viable repayment strategies.

  • The first strategy is to list your debts in order of balances from lowest to highest. Make minimum payments on all debts except the one with the lowest balance. Take all extra funds and put it towards that account until it is paid in full. This will give you fast results and more incentive and motivation to stick with the plan.
  • The second strategy is to list debts by interest rate paying off the highest interest rate card first. Make minimum payments to all debts but one and pay extra on the account with the highest rate. This will result in paying less interest over time, but it may be longer before you see the first account paid off.

If you are unable to make even minimum payments and cannot find ways to raise income or lower expenses, it may be time to call in the professionals. Credit counseling and debt negotiation companies like Finance Solutions offer a free debt evaluation and can discuss options that will reduce debt payments to a monthly amount you can consistently pay.

Step 10: Set a schedule of 3 to 5 years for debt freedom. Over the course of this time your spending habits will change and you will find you can live a frugal life without it feeling like a sacrifice. When you become debt free you will have more money to spend on the things that matter. This might mean starting or increasing investments for retirement or your children’s college funds. It might mean taking a vacation each year without adding new debt.

Living a debt free life is a freedom many people desire, but few are willing to implement the disciple necessary to achieve it.

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