So you have had it? You are tired of living paycheck to paycheck. You are tired of running out of money before that next paycheck even gets there. Maybe you are tired of having that paycheck gone before it even reaches your checking account.
If you are, I COMPLETELY understand! I have been there too. Heck, I'm still there. Getting out of debt is my number one goal in life! Everything I do on a daily basis is in pursuit of this goal.
If you have decided that you want to get out of debt, congratulations! You've made the most important decision in your life. Being bogged down in debt is no way to live. Debt freedom is going to give you the most amazing feeling, or so I've been told. I'm with you, and I can't wait for that moment.
Now that you have made this decision, where do you go from here?
1. Stop the cycle.
The first thing you are going to do is stop using your credit cards. Cut them up, each and every one of them. Right now!
You cannot get out of debt if you keep using those cards, even for emergencies. Credit cards are not for emergencies when you are in debt. They are for people who can handle using credit cards appropriately. If you are in debt, you are not one of those people.
2. Organize your bills.
To get out of debt, you must know what you owe. You can not ignore those balances anymore. You are no longer going to open the bill and only glance at the minimum payment. You are going to add up every single balance on every single bill and come up with that (probably shocking) magic number.
For me it was around $30,000 when I added it up two years ago. I got sick the first time I saw that number — literally. But once I admitted how high it was, I knew that from here on out, I was only going to see it get smaller and that was going to feel so great.
3. Make some phone calls.
Now that you have all your bills in one place, it's time to make some phone calls. Contact each one of your creditors and let them know that you are looking for lower interest rates. Let them know that you are interested in improving your credit score (they want that because a higher credit score means higher limits and they're hoping that means you will be charging more. We know, you won't be!).
4. Prioritize your bills.
Now is the time to make some decisions. Are you going to focus on your bills in order of lowest balance to highest or lowest interest rate to highest? One may help you save money in the long run, while the other may help you pay down debt faster. It's really a matter of preference and what makes the most sense to you.
Personally, I go with the lowest balance first. I am going to follow a plan like what Dave Ramsey describes. Haven't heard of him yet? You'll want to read up on what he has to say about getting out of debt. His radio shows and podcasts are very inspirational and educational.
5. Develop a budget.
You can't stop running out of money, start saving an emergency fund or pay down your debt without a budget. If you don't know how much money you are wasting each month, you'll never be able to get out of debt.
Once you have a budget in place, stick to it. You can do this. It will be worth it in the end.
Congratulations, we are going to get out of debt. I'm joining you in this process. My goal is to be free of credit card debt by the end of 2015. It's been slow going for me but I have no doubt I will get there, and I know you can too.