How to Get Out of Debt

There is no doubt about it, getting out of debt is the most important step to experiencing financial independence. It is not hard. In fact, here is a simple plan in which you will need no more money than you are spending on your debts now, although it does require commitment, persistence, and patience.

First, make a firm commitment to stop incurring additional debt. From this point forward, never inccur another debt for any reason. Stop laughing at those happy folks who simply say, “If you can’t pay for it you can't afford it.” This is the hardest step because it separates the talkers from the doers, but once done the rest is easy. From now on it must be a given that when you want to buy something you first gather the money for it, then buy it.

Second, make a list of all your debts. Write down how much you are paying each month. Add up the total to identify how much you must have each month. If you know how to use a spreadsheet on a computer this is a good time to make use of that skill because you can add columns for other useful information such as interest rates on each account and due dates.

Third, decide where you will get the money. Remember you are already doing it. This is the sweetest part of the plan. You don't need more money than you are paying now. You may round off numbers but if you are paying $300.00 per month now you will still only need to pay that much each month going forward. You just won't reduce it when the minimum required payment gets smaller.

Fourth, set up an allocation system. This involves two simple parts, getting and dispensing the money. One excellent way is to set up a separate checking account for this use. Every month you will deposit the total amount you are now spending on your debt payments into this account. Then you will pay out the same amount. You may increase the total if you can find extra money, say from a raise, to add into the fund. Never reduce the total put into this account each month until all debts are eliminated.

When one debt is paid off, the amount being paid to that account is added to the amount being paid on another account, either the one with the highest interest rate or the one with the smallest balance. When all other accounts are paid off, add this total to your house payment until it is eliminated.

Finally, start today and don't give up until you achieve your goal. If you suffer a setback for some reason, don't sweat it. There are real unavoidable emergencies. Renew your commitment. Be persistent. Be patient. You will get there and though the first few months will seem slow, soon you will be seeing tremendous progress every month. Let me assure you, it is well worth the effort.