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How To Get Out of Debt In 6 Steps



  1. Make a list

  2. Effective budgeting

  3. Emergency fund

  4. Pay down debt

  5. Stay focused

  6. Commit to a debt free future


Make a List

First, you need to list all of your debts. This list should include all of your debts, whether it’s student loan debt, credit card debt, or money owed to family or friends. You should include the amount owed, as well as the interest rate associated with it.

Then order list from the highest interest rate to the lowest interest rate. This is the order that you will use to pay off your debts. You may want to adjust your debt payment order depending on the type of repayment you plan to use. For example, the snowball method dictates that you pay off the smallest debt first, then move to the next smallest, and so on. You should also add up the total of all of your debts. This number can be shocking, but also motivation to help you focus on debt elimination.


Budget Effectively

The next step to debt elimination is to set a household budget and to stick to it. In order to get out of debt quickly, you should consider cutting extra spending from your budget. Think luxuries such as getting your nails done, buying a new kitchen gadget or going out to dinner. Debt reduction software can help you identify places to trim your budget.

Look at other ways you can cut your monthly expenses, such as lowering your cable bill, cutting cable altogether, or spending less on groceries each week. Aim to free up $200 to $300 extra each month to put toward your debt.


Set Up an Emergency Fund

The third step of your debt elimination is to set up an emergency fund. While the suggested amount varies, you should try to set aside at least 3 months of living expenses.


Put this money in a savings account with easy access for when an unplanned emergency expense comes up. That way, you won’t have to resort to using credit cards and accumulate even more debt. You may use the money that you have freed up in your budget to put towards this account is funded.

Keep in mind that an emergency is something that must be taken care of immediately, like a broken arm or a car repair. An emergency is not replacing your sofa or finding that perfect set of shoes on sale. Be sure that you are only using this money for a real emergency, not to cover yourself when you overspend.


Pay Down Debt

Now, it’s time to start paying down your debt. Once you’ve freed up money in your budget and padded your emergency fund, it’s time to apply that money to the first debt on your list.

Don’t divide the money across all your debts. By focusing on just one debt, you are building more momentum and will pay off that debt more quickly. Once you have finished paying off the first debt, move on to the second. You should apply the amount of your first payment, plus the extra money from your budget to debt two, giving yourself an even larger amount to put toward the next debt.

Continue with this pattern, rolling the old payments into the next debt on your list, and you will eliminate your debt much more quickly. You can speed up the plan even more by finding extra money to apply to your debts. Also, be sure you understand your bank's policy about additional payments to make your extra payments work the most effective for you.


Stay Focused

Occasionally, you may need to find a little motivation or boost to keep yourself focused on getting out of debt. Picking up extra time at work, getting a second job or selling some items can help you to eliminate your debt much more quickly.

Setting mini-goals and allowing yourself small celebrations (like dinner out) when you achieve a goal (such as paying off $5,000 in debt) can also help you stay focused.


Focus on Being Debt-Free in the Future

Once you have worked so hard to get out of debt, you should make a commitment to stay debt-free. This means planning for your expenses and saving up for them. These are called sinking funds, and you can have them for everything from home repairs to vacations. It also means saving up to buy your next car and sticking to your budget, but you will now have more wiggle room in your budget.

You should also focus on saving money and building wealth because this will help you to be able to absorb the bigger expenses without going back into debt for them. A solid financial plan will help you reach your goals. Take the time to set one up and talk to a financial planner so you stay on the right financial path.


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