This is really not fun. It is also something that doesn’t have to happen to you. While there are fewer folks each year who get out of debt compared to the many who go into debt, all it takes to start the process of whittling down your debt is a decision. In this post, learn the simple steps you can start to take today to get out of debt.
Step 1: Stop buying on credit.
Credit is so easy to misuse. After all, it is totally legal to buy things even when you don’t have the cash on hand to pay for them. One swipe and whatever-it-is it’s yours. So the first step to getting out of debt is to stop using credit. You can think of it this way: every time you use credit, you create more debt. But what you want is less debt, not more! If you are not comfortable carrying cash around (which is probably wise in many circumstances) you can still convert to a cash-based spending system by using a debit card or secured credit card (where you load the card with funds and reload when those are spent).
Step 2: Start working your way towards the 50-30-20 rule.
The 50-30-20 rule is simple to master: – Use 50 percent of your income for fixed expenses like rent, car loan, student loan, internet, et al. – Use 30 percent of your income for variable expenses like utilities, groceries, fun. – Use 20 percent of your income for savings. Here, your debt repayment is balanced with saving for a reason. If you wake up one morning and find life has handed you an unpleasant or simply expensive surprise, you don’t want to dive back into debt. So you want to begin building an emergency fund ($1,000 is a good initial goal) to cover such emergencies. While you are at it, you can also do your homework by reading Cashnetusa Reviews to find out about affordable sources of emergency funding if the need arises.
Step 3: Start a budget and stick to it.
Ah….budgeting – it is not the fun part about getting out of debt. Budgeting implies real, grown-up accountability to your get-out-of-debt goals. But of course, before you can dig yourself out of debt, you have to understand how you got in there in the first place. The best way to start budgeting is to tally up your last six months worth of expenses and income and then divide that by six. This gives you your average of what you have been spending per category as well as an average income. Next, highlight items that are not essential (here, think Netflix subscriptions, eating out, clothes shopping). The nonessential items are where you can stop spending beyond your means. Now it is time to create your go-forward working budget (you can use the 50-30-20 rule from Step 2 here as a guide when your finances permit).
Step 4: Make a “goodbye debt” chart.
This is the fun part of getting out of debt. You want to pay down your worst (i.e. highest interest rate or soonest due) debt first. So list out each debt source in order from worst to best on your chart. Then cross each debt off the list as you pay it off. By taking the time to follow these steps and make a plan to pay your debt in full, you regain your own trust, self-respect, and confidence that you can be a good manager of your own finances.
