Getting out of Debt: A How-to Guide

Is debt weighing you down?  There is hope!  It takes time, hard work, effort and persistence but you CAN get out of debt.  Here is a helpful step-by-step guide to help you pay down debt and move toward a debt-free future.  Make up your mind to put a plan into place and don't give up until you are debt-free. 

In order to get out of debt you must do the following:

1. Create a budget and track how you spend your money.  A good household budget starts with an honest assessment of your monthly expenses. Use this budget worksheet to jot down all of your regularly occurring expenses, including any money that you spend on eating out, hobbies or other forms of entertainment. Fill in all of the fields that pertain to you, and ignore the ones that don't. Have expenses that aren't included on the form? There's room to add those in under the "Other" category.

2.  Set budget goals and find ways to lower your monthly expenses.  For example, do you need your car?  Can you ride the bus?  Do you need cable/satellite/netflix when you can find free tv and movies on the internet?  Try brownbagging your lunches at work and cooking from scratch! Little changes can make a big difference in your budget.  For money saving ideas, see these links: 

http://thrivingandthrifty.blogspot.com/2010/10/ways-to-lower-your-monthly-expenses.html

http://thrivingandthrifty.blogspot.com/2010/10/practice-thrift-and-frugality.html

3.  If cutting expenses still does not allow you to put money toward eliminating debt, look for other ways to make money.  Can someone else in the family contribute financially?  Can you take on a part-time or second job?  A paper route? 

4.  Create a debt elimination plan.  The following commitments are vital to this plan:

• You must commit to stick to your budget.
• You must commit to not use credit to purchase anything until your debt is eliminated.
• You must commit to using at least 50% of increases in income to pay down your debt.

A Debt Elimination Calendar will help you eliminate debt.  Mark off several columns on a piece of paper.  In the first column, write the name of the month.  At the top of the next column, write the name of the creditor you want to pay off first.  It may be the debt with the highest interest rate, or the earliest pay-off date.  List the monthly payment for that creditor until the loan is repaid as shown below.  At the top of the next column, record the name of the second creditor you want to repay and list the minimum payment due each month.  After you have repaid your first creditor, add the amount of that monthly payment to your next payment to the second creditor.  In the example below, notice that the family finished making monthly payments on their credit card.  They then added $110 to the department store's $70 payment, creating a new payment of $180.  Continue this process until all debts are repaid.  

Sample Debt Elimination Calendar

Month	Credit Card	Depart. Store	Dentist	Auto Loan	Education Loan
January	110	70	50	235	75
February	110	70	50	235	75
March	110	70	50	235	75
April	110	70	50	235	75
May	PAID	180	50	235	75
June		180	50	235	75
July		180	50	235	75
August		PAID	230	235	75
September			230	235	75
October			PAID	465	75
November				465	75
December				PAID	540

Sources:  http://frugalliving.about.com/od/moneymanagement/a/Budget_Form.htm, http://www.managingmymoney.com/, http://providentliving.org/pfw/multimedia/files/pfw/pdf/72726_DebtEliminationCalendar_pdf.pdf