to get out of debt
Would it surprise you to learn that there are only three steps
to living a debt-free life? The concepts are simple, but living
them out in real life can be quite a challenge. Nonetheless,
if you follow all three steps, it’s unlikely that you’ll
ever suffer the painful consequences of high debt again.
Step 1: Live beneath your means
In order to get out and stay out of debt, you must learn
to live beneath your means. Spend less than you make. It sounds
simple, but for most of those who are in debt, this is the
biggest challenge of all.
Living beneath your means requires a conscious choice on
your part to live a lifestyle that enables you to have extra
money left over every month. In our culture, that can be hard.
We feel compelled to spend to keep up with everyone else,
or to have the biggest, brightest, and newest of everything.
Changing your mindset can be the hardest thing to do, but
it’s the only way to successfully get rid of debt. You
don’t need as much “stuff” as you think
you do. Learn to enjoy the challenge of seeing how far you
can stretch a dollar – by furnishing your house with
flea market finds, buying your wardrobe at a thrift store,
and scaling back on gifts at the holidays.
Figure out how much money you make, and what your expenses
are. If you are spending more than you make, it’s time
to cut back. Some people can just make a few changes –
such as eliminating extravagant vacations – and be back
on track. Others need to make drastic changes, such as trading
in expensive vehicles for more modest cars, moving to lower-cost
housing, or canceling cell phone and cable TV service.
In order to eliminate debt, you must live on a pay-as-you-go
basis. This means paying cash (or check) for everything. You
must commit to not using credit except in the most dire of
Step 2: Apply all surplus income to debt
Once you’ve analyzed your spending and trimmed it
back, you’ll have generated a surplus amount each month.
You’ll use that to pay off your debt.
Make a chart of all your debts – credit cards, consolidation
loans, payday loans, auto loans, school loans, loans from
mom, whatever. For each loan, list the total amount due, the
monthly payment, and the interest rate. Then total up the
minimum monthly payments to discover how much money you are
paying on your debt each month.
Using the surplus money that you found in your budget in
step one, begin applying it against your debt. If there are
several small debts you can get rid of quickly, you may want
to put the surplus against those just to pay them off quickly.
Otherwise, put the surplus money against the debt with the
highest interest rate, while still paying the minimum payments
on the other debts.
When you get rid of debt number one, take the money you
were using to pay that debt off, and apply it to debt number
two (still paying the minimum required payment on all other
debts). When debt number two is paid off, take that chunk
of money (payment money for number one and number two) and
apply it to debt number three. Continue this way until all
your debts are paid off – whether it takes you two years,
ten years, or more.
As your debt principal shrinks over time, creditors may lower
your minimum payments. But don’t fall into the trap
of paying less, or you’ll never be debt-free. Continue
paying as much as possible against each debt until it is paid
off. As long as you don’t add to your debt by taking
out more loans or running up more credit cards, this method
will guarantee you success.
Step 3: Stay out of debt
If you don’t want to end up right back where you started,
it’s important to stay focused. Here are a few tips
to help you stay on track.
• Continue to spend on a cash only basis as much as
• Don’t buy anything on payments unless absolutely
• Save for the big stuff, don’t finance it.
• Create an emergency fund that you can turn to instead
of credit cards.
• Always, always focus on spending less than you make.
out more ways to consolidate debt