Money Management

Getting Out of Debt:
Steps for Creating Your "Getting Out of Debt" Plan

Getting out of debt isn't hard to do when you have a step by step plan and you follow it as it was designed.

getting out of debt Now that you understand how important it is to make sure that your get out of debt plan is SMART, let's look at the steps you are going to take to create your get out of debt plan.

Remember as you are creating your "get me out of debt" plan:

How important it is that the plan be easy to follow,
Look for ways to eliminate credit card debts
You are in control of how well the plan works for you.

Steps 1 Through 4 for Creating Your "Getting Out of Debt" Plan

Now on to the steps:

Start by Calculating Your Debt.

If you don't know what debt you have, or how much you have then you don't know where you are starting from. We have a great step by step guide on how to calculate debt, including a free Debt Schedule (a pdf download) for you to use. Be real with yourself. Go through all of your papers to make sure you haven't forgotten or overlooked anything.
Stop Using Your Credit Cards

There is no point in making a "getting out of debt plan" if you continue to accumulate debt. So get rid of those credit cards, cut them up, or give them to someone you trust for safe keeping. Hide them away - maybe in the fish tank or the freezer. Just don't close the accounts.
Prioritize your Debts

In the following order:

Secured Debts first - Secured debts are debts that have assets to back them up (they can be repossessed) - i.e. mortgage payments in arrears, or Car payments in arrears

Debts that your wages can be garnished for - i.e. student loans, child support payments, alimony payments

Any debts for necessary services - i.e. medical bills, overdue rent

Credit cards and other unsecured debts - most other debts - not secured by assets (like your house or car)

Family and friends - Still important - but chances are they will be more understanding then your creditors - they are a lower priority (most friends and family won't put you into bankruptcy) but make sure you share your plan with them and show them that you are committed to the plan and to paying them back.
Determine How Much of your Monthly Income you can put Towards Debt Repayment

Take a look at your income and your expenses. For an easy way to do this take a look at our Really Simple Budget Page. It outlines what you have to do to determine how much you have left over at the end of the month to pay off your debt. Under Debt Repayment in the Expenses part only put in the minimum payments as you will have to make them each month.

If you find that you are in a negative position (your income is less then your expenses) then start to reduce your expenses, until you have a positive cash flow (your income is greater than your expenses). Take a good hard look at your expenses and STOP SPENDING. Getting out of debt will require changes in your spending and lifestyle. For other ideas on increasing the amount of monthly income you can put towards paying off your debt check out Easy Ways of Paying off Debt.