If you have fallen into debt you are not alone, there are millions of people around the country that are facing massive debts. While fallen into debt is quite easy given all of the cheap credit that is being offered it takes discipline and a plan if an individual wants to get back on their financial feet. These steps are going to help steer you in the right direction.
Itemize Your Debts
In order to get out of debt you first need to list all of the debts you have, amount outstanding and the interest rate being charged. If you overlooked this step then you will never get out of debt because you do not know who it is you owe! When you have established who you owe and the amounts outstanding then you can come up with a plan of attack, if you do not take the right approach then you could end up slipping even further into debt.
Budgeting is Key When Trying to Get Out of Debt
Most people do not like to talk about budgets but without it you would have no way of knowing whether you are getting out of the hole or digging yourself deeper into it. What you have to do is list all of the sources of income you have then write down all of the fixed expenses like house, car, taxes in one column. In another column you have to list variable expenses like food, entertainment, and clothing, you will need to trim your variable expenses while at the same time increase your income by either working more overtime or taking on a second job.
Start by paying down the smallest debt first until it has been paid off then use the money you would’ve applied to that smallest debt to the next debt until it has been paid off. This is commonly referred to as the debt snowball effect but it is a very liberating feeling to pay off a debt knowing you never have that burden on your shoulders again. The feeling of being debt free is one of the best feelings a person can have and you too can relish in the experience.
Staying Out of Debt
After your debts have been paid off and you are starting to get back on your financial feet you may be tempted to indulge and go on a vacation or make a large ticket purchase. Something that you should do moving forward is to only pay cash for things that you want. The benefit of paying with cash is you never have to worry about making payments and you will actually feel the emotional pain when you hand over the bundle of cash to settle the transaction. When a person uses a credit card or pays installments they do not feel the discomfort that would be felt if they had to pay with cash. This approach will also teach an individual financial discipline. By only paying with cash you cannot go into debt since you are not able to spend what you do not have.