Get Out Of Debt And Stay That Way In 5 Easy Steps
Have a lot of debt? Spending more than you make? Nothing can be more terrifying than the realization that the bills sitting on the table far exceed what you have in your account. There are many reasons you may find yourself in this situation that have nothing to do with poor spending habits. Regardless of how you find yourself in such situations, there is a way out. So, if you want to get out of debt, or guarantee you never find yourself in it, then read these 10 easy steps to get out of debt.
Step 1: Change your viewpoint
If you are in debt, whatever viewpoint you had on your finances is not working. So the first step then is to change it. Fortunately for you, if you are reading this, you have already completed this step, so congratulations!
Step 2: Confront your finances
To get out of debt, you need to confront your finances. This may seem dumb and silly, but you would be surprised how many people, both financially affluent and otherwise are not actually doing this step. Confronting your finances does not mean assuming you are making enough to pay for things. It is truly knowing that you do. If you are properly confronting something, then you can control it. So it follows that if you are not in control of something, you are not actually confronting it.
Do you know or have a list of what all your recurring expenses are and when they are due? Or how much you spent on gas? If not, you should start by taking a look and really understand where your money is going. Create a list of all your bills and when they are due, categorize your different spending and understand how much you are spending where. Later after Step 3, this can be further expanded to making sure that when a bill comes in you handle it immediately. Don’t throw it on the counter to handle it later or worse hope it will eventually go away, because it won’t. In fact, it will cause you even more headache down the road!
Step 3: Get Solvent
Before you can begin to get out of debt, you first need to make sure that what you are bringing in is covering how much is going back out. The next step to confronting your finances is to then handle them. This will include making a budget and working it and re-working it until the amount going out each month is below what you bring in. This is the step where difficult decisions may need to get made, the step where you may need to give up things like your Netflix or Spotify, so that you can get control of your finances. Check out this detailed guide for help with this step.
Step 4: Pay it down
Sounds simple but there are actually a lot of methods and strategies to doing this step, popular examples include the Snowball or Avalanche method. The basic premise is exactly as the name suggests, use any excess money each month towards paying down the debt. I’ll talk about and link to my own strategy to this a bit later.
Step 5: Go back to Step 2
Did you catch that last line after Step Two? the one that said it could be further expanded to handling bills immediately? Did you pay attention in Step 3 where I said you would need to work and re-work your budget? The simple truth about managing finances and your budget is that it is a cyclic process. This makes sense right? Life happens; You may get an unexpected expense or maybe you get a raise or get married or have kids. As life goes on your financial situation will change. To match, so must your budget. Truly staying on top of it all is making sure you are always confronting, ensuring you are solvent and paying down your debt.