5 Steps to Getting Out of Debt
Step 1: Get into a right relationship with money.
A heavy debt burden can feel like an accusation, and maybe you’d rather not deal with it. But if you’re reading this you know ignoring your debt will not make it go away. Remember, you are in charge of your money, not the other way around.
Step 2: Carefully monitor what you spend.
Categorize your purchases into wants and needs. Be honest. Online banking can be a help here – you can download transactions you make from your bank account or credit cards. Or, take your paper statements and label each line item. Put what you normally spend on discretionary items – that $3.50 latte, those weekly trips to the mall – into paying off your debt.
Step 3: Put your credit cards away.
We are more aware of what we spend when we pay with cash. Use this as a way to curb your spending. Another strategy is to shop only with a list and take only as much cash as you’ve decided you can afford.
Step 4: Use your savings.
It sounds counterintuitive, but if you’ve got a rainy day fund stashed in a savings account or CD, you may want to use it to pay off your debt. Financially speaking, savings earning five percent may be better used to pay off credit cards charging you 18 percent. Once your debt is paid down, you can start saving again.
Step 5: Think about debt consolidation.
At nine percent and higher, credit cards are typically the most expensive form of debt. You may be able to transfer that debt to a lower-interest loan. If you are a homeowner, a cash-out refinance or home equity loan or line of credit can be smart options. For more see our article on debt consolidation.
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