Getting Out of Debt in Six Easy Steps

If you have debt, you are not alone. It is estimated by the Federal Reserve that 40% of Americans spend more than they earn. Approximately 185 million Americans have at least one credit card, and the average credit card debt totals $8,400 per person. The average credit card interest rate is over 18%, which means that the $8,400 debt takes more than 20 years to pay off at minimum payments, with a total cost nearing $25,000. Ridding yourself of significant debt is a long term commitment to a change in your spending habits, but not necessarily your lifestyle.

Step One: Know where you stand.

In order to fix your money managment, you need to know what's wrong with it. Can you tell someone, off the top of your head, how much money you spend every month? Probably not, so keep a journal of every cent you spend for at least one month. A small pocket sized notebook will be sufficient, or most PDA's have expense tracking programs. Be honest and consistent, omitting or forgetting expenditures won't help you fix your spending problems. Include credit card expenditures in your journal. Using this journal along with all sources of income to develop a monthly balance sheet will show you where you stand. If you are in the red, then you know you've got some work to do. Even if you don't spend more than you make, you likely have a bit of work to do as well.

Step Two: Develop a budget.

Using all the information gathered in step one, you can now come up with a plan. Start with a list of all absolutely mandatory expenditures (mortgage, rent, car payment, utilities, etc). This should give you an idea of how much disposable income remains to you. Now comes the tough part, thinning out your recreational spending. For some it is clothing, for others it's going out to eat several times a week. Whatever it is for you, it needs to be reduced.

Step Three: Curb your spending.