Debt is one of those four-letter words that make us cringe, or induce migraines. No one wants it but almost everyone has it. If you are one of the many Americans looking to get out of debt, you may be wondering where to start and how to actually reach that goal. We’ve got you covered with a step-by-step guide for how to get out of debt.

Know Your Debt

I say it all of the time: If you want to get somewhere, you need to first know where you are starting. If you are taking a trip, you have to know your starting point to plan your journey. When you are working to get out of debt, you have to know the debt you are dealing with.

Having your credit report for planning is definitely important, but you cannot forget the debts you have that have not yet reached your credit. If you do not take care of them, they will end up in your report. It is best to face them before they get there.

So, the first steps are to gather your credit report and gather every bill you have outside of your regular monthly bills.

Calculate your total amount of debt. At this point, you might want to download a debt tracker app, such as the Debt Payoff Planner. You can go ahead and input all of your debts at the beginning and rearrange the order later. It is much simpler to do it this way than to try to rearrange a written list. This app also calculates all of your debt for you and lets you play with payoff dates, which will be very helpful in a moment.

Understand Your Debt

All debt is not equal. You need to understand how your different debts are costing you so that you can make the most impact. For instance, a hospital bill and a credit card bill are very different. Most often, as long as you are making payments on the hospital bill, they are not going to take any further action. This is, of course, not a guaranteed thing, but in my experience, they are happy as long as you are working on it.

Credit cards, on the other hand, will tear you apart if you do not pay quickly. Interest just continues to be added until you pay your balance. And credit card companies are not as easy to deal with when you miss payments. Between the credit card bill and the hospital bill, it would benefit you the most to pay off the credit card bill first.

In a few minutes, you are going to put this debt in a workable order, but before you do, you need to take a moment to be sure you understand how each type of debt works.

Set Your Get Out of Debt Goal

At this point, you should have all of your debt gathered and added up, and you should know your credit score. It is now time to set your get out of debt goal. You can do this in a few ways:

By the date you want to be out of debt
How much you want to pay off monthly
How much you want to pay off yearly
Pretty much any way you want to list it

This is one spot where having something like the Debt Payoff Planner can come in very handy. It automatically totals your debt. It also allows you to change the amount you want to pay every month or the date you want to have the debt paid off. It then formulates a plan for how you can do that, telling you what bills to pay each month and how much to pay to each.

All of this information can be rearranged, but it is very helpful in the beginning because it allows you to see what you are facing. It is important to be honest with yourself here and set r ealistic financial goals. Challenging yourself is one thing. Setting a goal to pay off $10,000 a month when you only make $1,000 a month is setting yourself up for failure.

Take a very honest assessment of your situation. How much can you afford to pay each month? Is there a way you can pay a little extra? What is a realistic amount you can pay and how often can you pay for it? Once you have determined that amount, calculate how long it will take for that amount to help you get out of debt.

If you are satisfied with that length of time, move on to the next section. If you want to cut that length of time down, you have a little more work to do. Remember, though, you need to be realistic. Yes, you can cut the length of time in half- if you are willing to work twice as hard or make big moves to do it. Before you move on, you need to decide just how hard you are willing to work to reach your goal.

And, there is no shame in taking a little longer. You might have other goals that take priority over your goal to get out of debt. That’s fine. This is your goal, not someone else’s. You need to be committed to your goal to stick with it. If you are pushing yourself because someone else says you should, you will not be as committed. This is about you, so determine your goal according to your own feelings and priorities.

Make Your Plan of Attack

After you have set your goal, you need to prioritize your debt. Remember when I said you need to understand your debt so you can put it in a workable order? Well, that’s what we are going to do now. There are a few different orders you can put your debts in, so I feel you need to understand how your debt works before choosing a method. There is also more than one way to actually take care of the debt, so let’s get started:

Debt Snowball

Debt Avalanche

Sandwich

Debt Settlement

Debt Consolidation

Time to Choose

Now that you have learned the methods, you need to choose your plan of attack. In my opinion, you have a much better chance of success if you mix up the methods and work them into one plan. Let me give you an example:

Set your goals on time. visit the goalry mall.

GET MEMBER KEY

List the debts from smallest to largest, then prepare to use the “Sandwich” method.
Call the creditor of the smallest debt and the largest debt to ask about a settlement.
Split the $200 you can comfortably afford each month in half between the smallest and largest.
After the smallest debt is paid, call the creditor of the next smallest for a settlement.
If possible, get a personal installment loan to pay off multiple debts. Before paying, call the creditors for settlement offers, and then pay as many debts as possible with the loan, focusing mostly on the large ones while there is a lump sum available.

This is just one example, but it should give you an idea of how to make your plan. And remember, if something goes wrong, you can always make changes.

Find the Money to Get Out of Debt

Assuming you did not get a loan or your loan amount was not enough to cover all of your debts, you may be wondering how to have enough money to pay on your debts. Here are some ideas to get your thoughts rolling:

Look Into Your Spending

I mean, really look into your spending- especially the small, unplanned purchases. If you run in to grab a candy bar every time you stop to get gas, you might be surprised at how much that adds up to. Take a good look at receipts and bank statements.

Many finance experts suggest looking into your grocery spending when you are trying to cut down. If you do not already, start making a meal plan for the week and purchase only what you need for that plan. Many people find at least an extra $100 when they start being more intentional with their grocery budget.

Sell Your Stuff

There are kiosks where you can sell your old cell phones. There are plenty of apps to sell clothing and other possessions. There are websites that buy college textbooks. Spend a couple of days really decluttering your house. Try having a yard sale.

Second Job

You can always consider picking up a second job, a side hustle, or some extra hours at work. Every little bit helps.

Mistakes to Avoid When Trying to Get Out of Debt

Not having money saved

So here is an important fact to know: when you are trying to progress, something is going to happen that can easily throw you off. Maybe you start paying your debt and end up with a flat tire. Now, your monthly debt payment has to go to a new tire. This is the simple truth of it- if it can go wrong, it will. Get ahead of this by having some savings set aside before you start paying off debt. One of the best ways to do so is to open a savings account. Below you can take a look at some of the best options and find the one that works best for you

Not having a budget

You really, really, really have to have a budget to reach any financial goals. This is your way of telling your money where to go instead of wondering later where it went.

Not having a plan

Again, when setting financial goals, you have to have a plan for reaching them. Trying to get out of debt without a plan of attack is like taking a cross-country trip with no map and without filling your gas tank up- not smart.

Continuing the same habits

Your habits are what have you in your current situation. There may be other things to blame, as well, but habits definitely play a part, whether it’s racking up debt through spending or just ignoring bills when they come in. You need to start positive habits or you will just keep yourself in debt.

Not checking in with yourself

Many people put a lot of effort into making a plan but soon forget the plan. They may even make a few successful debt payments, but eventually, they forget what they are supposed to be doing. Next thing they know, they are setting the same goals the following year.

You can easily beat this problem by setting a weekly or monthly appointment with yourself to look over your plan again and check your progress. This will not only keep you focused, but it will also give you the opportunity to make any changes if something is not working.

Not rewarding yourself

You may think that getting out of debt is reward enough, but humans often need a physical reward to stay motivated. This is not an excuse to spend a ton of money. In fact, you do not have to spend anything. Rewards can be anything from a hot bubble bath to having dinner with friends. Set milestones for small rewards, and have a big reward planned for when you are out of debt.

Closing accounts

There are many people who close credit cards once they are paid off. This is not a good move. When you close credit accounts, your credit mix, and credit utilization take a negative hit. Keep the accounts open. If you are tempted to spend, just cut the card up.

Not checking debts

Do you recognize all of the debts on your credit? If not, you need to investigate. If you see any mistakes, you can file disputes through the credit bureaus.

Conclusion

Working to get out of debt is a big decision, and it requires a big commitment. The good news is that you can absolutely do it. With a plan and dedication, you have the power to defeat debt and live a better financial life.

How to Get Out of Debt: Financial Goal 911