If you're suffering from debt and its headaches, it can be overwhelming. Often, a person doesn't know how he or she got into this mess nor how to get out of it. It can seem like there are no good answers and certainly no easy or cheap ones.
But don't despair -- you can get rid of your debt problem for good, and you can do it on your own. Here are 5 steps to dig yourself out of the debt hole.
Be Honest
Step one in your debt-free crusade is something that can mean the difference between success and failure -- or between solving the problem for good and relapsing later. You must be honest about things. Start by being honest with yourself as to why and how you got into debt. If you have trusted family or friends, be honest with them about your financial situation and your plan to get out of debt. Ask for moral support but not money.
Then, get honest about your finances. Collect all debt information together -- personal and public loans, credit cards, lines of credit, payday advances, mortgages and vehicle loans -- and write it all down in a journal. Seeing everything together may be a painful experience, but understanding the depth of the situation is the first step in controlling it.
Go Cash Only
Credit (and to some extent, debit) cards are a way to avoid being honest, so you may need to stop using them. There are many psychological reasons why using credit cards leads to overspending, including how easy swiping is versus handing over bills and how it causes price confusion in our brains. For these and many other reasons, it's best to destroy most or all of your credit cards and put the debit card in a drawer. Using a fixed amount of cash per week or month will help you get a handle on your real spending and enforce any budgets you come up with. Don't worry, though--you can go back to using cards later if you choose.
Keep a Spending Diary
Like keeping a food or calorie diary helps a dieter, the act of tracking expenses in writing will help the recovering debt addict. Write down every time you spend any money, including the amount and what it was for. You may choose any method that works for you, including paper and pencil or an app on your phone. The important thing is to start being aware of what you're spending so you can make better choices.
Consolidate Debt
If you have more credit card, or "revolving," debt than you can easily pay off in a short period of time, you may want to consider consolidating it into a single payment on an installment loan. Installment loans usually have two advantages to revolving credit: they carry lower interest rates and you cannot add to the debt. However, if you choose this method, be sure you can not continue to charge on your credit cards or the effort will be wasted.
Start Sinking Funds
After tackling your past debt and changing your habits, you should start to plan for the future. An excellent way to do this is to start several "sinking funds." Once used only in business, many consumers are learning the value of these funds designed to save money for irregular but expected expenses. Typical home sinking funds include house maintenance, pet costs, insurance, car repairs or vacations. Look over your statements and bills for the past year to figure out which sinking funds you should begin contributing to and how much money needs added annually. Then start adding to them monthly or after each paycheck.
Getting yourself out of a debt quagmire can be time-consuming and is never very much fun. But by being honest with yourself and others, examining your spending habits and putting money away for the future, you can turn your entire life around. And you can do it for free, on your own schedule and in a system tailored to your own needs. Why not start today?
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