Are you up to your eyeballs in debt? Don’t see anyway out? If so, take heart. You are not alone. Millions of Americans live with this burden and never once think about how to get out of debt.
You shouldn’t ignore the mountain of debt piling up. It would be better if you paid close attention because excessive debt will cripple your wealth building process. It will mess up your savings, the kid’s college funding, and even your retirement investing. In many cases, it also ruins your relationships.
People choose to ignore the debt crisis in their lives for many reasons. Some aren’t self aware enough to see how debt is affecting their life. Others enjoy the perks that come from excessive spending and think debt is the only way to get what they really want. I’m sure in some cases, people see the mountain of debt is so overwhelmingly high. As a result, they don’t know where or how to begin climbing out of it.
Whatever your circumstance, what I am about to share can help. How to get out of debt involves five simple enough steps to understand. However, the steps themselves won’t be easy. A few will be challenging to implement. Your behavior will have to change if you are going to be successful.
How to Get Out of Debt in 5 Steps
I said getting out of debt is mostly about behavior. Ironically enough though, it doesn’t begin there. The first step on how to get out of debt begins with your attitude.
Step #1: Get angry
The choice to get out of debt begins on the inside, in your soul. There has to be a fire burning hot and heavy that will push you to take on this task with reckless abandon. No halfhearted, lukewarm, wishy-washy effort is going to cut it. You have to get fired up!
If this doesn’t happen, you will never make it, plain and simple.
I emphasize this as the starting point because the debt-payoff-journey is a tough road. It’s filled with ups and downs and financial and emotional setbacks. There will be questions that have no immediate answers. The journey will play tricks on your mind and lead you to doubts as to why you are on the journey in the first place.
In those moments, you will need some hot coals of emotion that continue to burn. And those hot coals of emotion need to be directed at your enemy – the debt.
So get emotional about it. Look around and realize how debt is ruining your life, or at the least, holding you back from accomplishing your dreams. Tell debt you are going to kick its tail and be done with it.
You simply can’t let it win.
Step #2: Stop borrowing money
When I reached a chunky 200 lbs. several years ago, it became obvious that was more than my 5’11” frame desired to handle. Sluggishness, high blood pressure, and poor eating habits all ruled my life. I didn’t like the look or the feeling and I knew if something didn’t change, I might have health issues later on.
So after getting angry about my situation, I worked on removing the bad habits. I ate better and took vitamin supplements. There were fewer late night snacks before bedtime. I got off the couch and started running. I ended up losing 25 lbs. and have now settled into a comfortable weight for my body size and age.
I eliminated the things that led to my condition, which is exactly what you must do with your debt.
The first behavioral step to get out of debt is to cut off the debt itself. It is especially relevant that you avoid taking on any more debt. Period! It’s as simple and basic as that. You can’t keep adding to the depth of the hole you are already in.
This won’t be easy and it may require tweaking how you pay for things. It might sound drastic but you should probably cut up your credit cards. You can pay for things with a debit card or with cash. It’s not the end of the world.
This may feel like it’s already getting tough and we are only on step #2. But this is a critical step. You can’t climb your way out of the hole you are in if you keep adding to the hole.
Step #3: Save
The third step of how to get out of debt is to save any little bit you can pinch out of the monthly budget.
Developing an emergency savings fund at the beginning will help you stave off going into more debt. You will have built up some cushion so when emergencies come you can pay for them in cash instead of putting them on a credit card.
In fact, I would suggest developing an emergency savings fund before you begin the full-blown process of paying off the debt. So in order to do that quickly and move on to fully attacking the debt, you may have to:
Step #3A: Sell some stuff. Look around your house for things you are not using. Ask yourself, “Do I need that thing more than I want to get out of debt?” If the answer is “No” then get rid of it. If the answer is “Yes,” ask the question again, just to make sure.
Have a garage sale. Put the items on either Ebay or Craigslist. Take things to a consignment store. You need to raise cash quickly to establish that emergency fund. Selling items is the best way to do that.
Step #4: Increase income temporarily (find part time work or do some overtime)
Step 4 of the how to get out of debt process will vary from situation to situation. Some people may not be able to take on a part time job due to the time commitment involved. Perhaps your current job will bring in the necessary funds to pay off the debt in a reasonable amount of time. Or maybe you conclude the extra time spent away from your kids won’t be worth the extra money.
It’s still a step in the process that needs to be evaluated. And if you decide to take a part time job, realize it’s not forever. This will be something you do only to speed up the debt payoff process. Once the debt is gone, so is the job.
And if you can’t take on a part-time job, realize it’s OK. You can only do what you can do. Don’t beat yourself up about it. Your journey might take longer if you can’t make more money but you can still make it.
Step #5: Choose a debt repayment plan
There are two basic ways to go here and both have merit:
Way #1: Choose the highest interest rate debt and pay that off first no matter how large it is. Follow that up with the next highest amount and so on until the lowest interest rate debt is paid off last.
Main Pro: By attacking the highest interest rate debt first, you are paying off the one that is costing you the most money.
Main Con: If it’s a large debt amount (like a school loan), it may take a very long time to pay off the first debt. That can be discouraging.
Way #2: Choose the smallest debt amount and pay that off first. Then follow that with the next largest and so on, saving the largest debt amount until last.
Main Pro: You get some of the small debt amounts taken care of quickly which can be a big psychological victory.
Main Con: You may pay a little more interest over the life of your debt payoff plan.
You must decide which payoff plan will work for you. I prefer #2 when telling people how to get out of debt because the psychology boost that comes from seeing those small debts quickly fall is really powerful. It helps keep the inner fire burning and creates momentum for the rest of the journey.
Either way, you are paying off debt and that is always a good thing.
In conclusion, understanding the steps to get out of debt is the easy part. The behavioral change that needs to take place is where you will face the biggest challenges.
However, debt doesn’t have to beat you. You can win! Get started today taking control of your life. The road to financial freedom is waiting for you to take the journey.
Questions: If someone asked you how to get out of debt, what would you tell them? For those that have paid off your debt, what was the toughest part? If you are in the process of paying off debt, what has been the best victory so far? For those who haven’t started paying off debt yet, what’s holding you back?