You're not sure how but somewhere along the way you've gotten into some trouble. You find yourself in a prison of your own construction and there is seemingly no way out. Don't worry. There are a lot of people in this prison. Many before you have been able to become debt free through hard work and consistent responsibility. The first step is to decide to take charge and begin planning your escape.
Your first priority in debt free consolidation is to stop increasing your debt. There are plenty of reasons people go into debt:
- Credit Card Debt
- Bad Investments
- Higher Education
- Major Emergencies
- Medical Bills
Some are unforeseen and are difficult to avoid if you didn't plan for them, like emergencies. Others are the result of poor decisions. Don't be embarrassed if this is you, you are not the first, but it is time to take responsibility. If you have more than one credit card, cut up all but one. Make the last one not so easily accessible. This way, it is out of reach the next time you have the urge to impulse buy. Some even suggest placing it in a sandwich bag full of water and putting it in the freezer. That's right; literally freeze your credit card. Not only will it be harder to get to but it will also remind you of why you put it in there in the first place and possibly strengthen your resolve.
Keep a Log
Keep a record of your spending. This is a tedious practice, but it can be extremely useful. You might think, "Why do I need to keep a record? I know what I spend, I was there." Well the truth is that the majority of people who are in debt didn't get there because of one colossal purchase. Usually, it is a slow process of spending just a little bit more than you can afford each month until it snowballs into a big debt. Tracking your spending shows you, on paper, exactly what your habits are and can help you pinpoint the areas you need to stop spending so much.
Who Do You Owe?
Debt is all about owing money, right? So to live debt free, the next step is to figure out how much you owe and to whom. You might be dreading this part because you are not looking forward to actually seeing that big red number. However, you already know you are in debt. Plus, having a clear number to work with might feel better than the big, scary, ambiguous knowledge that you are in some unknown amount of debt. Gather your bills, figure out your total balance and your minimum monthly payment, and don't forget about interest rates.
Start to Dig Your Way Out
Okay, at this point you know where you have been spending money and you should have figured out places you can save. You also know how much money you owe and who you need to pay. Now you need to decide how you are going to start digging yourself out. There are many different approaches to this part, but one effective method is the Snowball Plan. This method involves focusing all your efforts paying off the minimum payments first as opposed to going after the big debts right away. This works in a few ways:
- Small payoffs first give you quicker gratification and encourage you along your process.
- While you work your way down the list, add the payments of the previous debt to the new one that you are focused on.
- This builds momentum. By the time you get to the big one you've freed up all your payments for one big debt.
Be Patient, Stay Vigilant
Working your way out of debt can sometimes feel like digging a tunnel with a spoon. Don't be discouraged when your plan takes a long time to work. Remember that you probably didn't get into debt over night and you won't be able to rush your way out. Quick fixes are temporary, but a careful and methodical plan will help you start your debt free living with lasting effects.