How to Get out of Debt

If you are beginning to struggle with your debt load and feel like you are barely living from paycheck to paycheck, it is time to take a serious look at your finances. There are steps you can take now that can help you avoid disaster, but you have to realistically evaluate your situation. Start with the following action plan:

Write down your monthly expenses. Include everything you are spending, including small items like specialty coffees and dry cleaning costs, as well as the larger items like rent and car payments. You may need to take some time with this part. It may help to carry a small notebook with you and jot down everything you purchase. When you are finished, total the amount.

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Now, total your monthly income. This amount should be your actual take-home or net pay. This is the amount of money you currently have to live on. This should be a larger amount than the expense total. If your expenses are equal to or greater than your income, you have some hard choices. Your options are the following:

try to make more money (change jobs, find a second job),
cut expenses (eliminate items that are “wants” instead of “needs”) or
do a combination of both

Create a flexible budget that you can live with. Some items, like rent or a loan payment, will be a fixed amount each month. Other expenses, like utility bills or food, will vary from one month to another.

Examine each expense to see if it is a “want” or a “need.” For instance, having clean, presentable clothing to wear to work is a need. Buying expensive designer clothes to wear to work is a “want.” Buying nourishing food is a ‘need,” while eating several times a month at expensive restaurants is a “want.”

Once you know what you can afford to save after you have cut your expenses, treat that amount like a fixed expense. You are paying yourself. Be sure to put that money in your savings account before you pay anything else. Sometimes it is easier to get used to saving if you arrange to have that amount directly deposited in a savings account by your employer.

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Your goal is to make more money than you spend, and to save the difference. As your savings grow, you will find that you can pay cash for some emergency expenses instead of charging them on your credit cards or taking out loans to cover them. You will also be able to treat yourself to some of those “wants” occasionally. Gradually, you will be able to see your debts fade away and your savings grow.

There are community sources available that can help you get out of debt. Many churches, non-profits, and government agencies have programs to help consumers. They WANT to help. Many of them also will loan money at a very low interest to allow you to consolidate your higher interest debt. A combination of using community resources and organizing your finances can help you get control of your financial situation.

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