The Number One Way To Get Out Of Debt

How do you get out of debt? If you’re like most Americans, you owe several different entities money. These could include a car dealer, mortgage broker, credit card companies, the government (for student loans), or your local bank or credit union. How do you decide who to pay off first? Should you start with the largest debt, the smallest one, the one with the most interest?

This article will take you through each step of the how-to of getting out of debt. By the time you finish, you will have a vital tool in your financial freedom toolbox.

Step 1: Start spending less than you make every month. You may need to create a written budget every month in order to be able to do so, allocating only so much every month for groceries, clothing, entertainment, and so on.

Step 2: List your debts in order from smallest to greatest. Don’t worry about the interest rate. You want to start paying off the smallest debts first, because you will see results quickly and therefore your motivation to get out of debt will grow.

Step 3: Pay off the smallest debt first. Get all the extra money you can. Put yourself on a tight budget, stop going out to eat or to the movie theater, sell stuff that you don’t need, take on a part-time job or start a side business. Put all that extra money toward the debt.

Step 4: While you pay off the smallest debt, continue to make minimum payments on your other debts. You want to keep all your payments up to date. Going into default is sometimes unavoidable, but always unpleasant.

Step 5: When the first debt is paid off, start working on the second debt. Use whatever extra money you can come up with. You should have a little more money with this debt because you are paying the minimum monthly payment on one less debt.

Step 6: Continue on with each progressively larger debt. With each debt, you should a little more money to throw at it every month because you now have fewer minimum monthly payments. This is called “the debt snowball.”

Step 7: Celebrate! When you have paid off all of your debts, not including a mortgage, celebrate! Just don’t get into to debt to do it. Stand up in front of you Sunday school class and shout your victory. Invite a few friends over for a party. Go to your favorite restaurant for the first time since you started paying off debt.

In fact, if you pick a fun debt-free reward ahead of time, it will help you to stay motivated to keep on attaching your debt.

Getting out of debt is a simple process. The hard part is getting out of the overwhelm when you look at your bills. Take each step at a time, and you will succeed at becoming debt-free.