Getting Out of Debt (And Never Look Back)

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Debt can happen to the best of us...including me. I was someone who thought I was responsible with money, and I was. The problem turned out to be that I was naive about debt. It's perfectly normal to saddle yourself with a house payment and a car payment from the beginning. Right? You're supposed to max out your income (minus savings). Wrong. Wrong. Wrong.

Here's what happened, and I know I'm not the only one. I stretched my income so thin that when extra expenses came up, like house and car maintenance, they would put me in the negative. My first attempt was to make more money to accommodate my lifestyle. That didn't work. One, that's hard to do if your time is already limited. Two, you sacrifice your family to do so. I was a slave to debt. That realization struck me to my core, and I knew that was not how I wanted to live. I want to share with you actionable tips that anybody can follow to help reduce debt faster.

1. Understand Your Current Income and Expenses

You can't make changes until you understand what is going in and coming out now. Put it on paper so you can see your fixed expenses, variable expenses, and income. Be honest about what you spend each much. Sugar coating won't help.

2. Eliminate and Reduce Expenses Where You Can

First, look at your list and see if there is anything you can eliminate. For example, do you need three streaming services? Are there subscriptions you don't use? Cancel these. You will be amazed at how $10 here and there adds up. Don't think of it as depriving yourself. Remember that you can always subscribe to these things after your debt is paid off when you have the disposable income to do so comfortably.

Second, are there products and services you can get better rates on? For example, do you have the bare minimum cell phone plan you need, or could you go with a less expensive plan? Maybe switching providers will shave some off of your monthly bill. The same is true for automotive and home insurance.

3. Update Your Budget

After you have eliminated and reduced as many expenses as possible, update your budget accordingly. Start with your fixed expenses. These stay the same month-to-month (e.g., your cell phone bill or mortgage payment). Next, work on your variable expenses (e.g., gas, groceries, dining out, etc.). Set a budget for each. Ensure it is realistic, or you are doomed from the get-go.

4. Devise a Plan to Stick to Your Budget

A budget is useless if you don't have a solid plan for sticking to it. There are several ways you can go about doing it. My favorite is to have two checking accounts. The first is for fixed expenses, and the second is for variable expenses. This way, I know the bills are getting paid, and I could more easily tell how much I have to spend on gas, groceries, shopping, entertainment, etc. If you put all of your money together, you are much more likely to overinflate how much extra money you have.

5. How Much is Left?

Chances are you won't have much money left, but on the off chance you do, go ahead and set a certain percentage, no matter how small, in a savings account. Every dollar counts. When I first began, it was 10%. The rest should be added to a debt payment.

6. Which Debt Should You Start With?

This is really up to you. There are two popular methods. The first is the snowball method. You start with your smaller debt and put all of your extra money towards it. Once that debt is paid off, you move to your next smallest, tacking on your monthly payment to this debt for an even larger payment. You do the same thing until all of your debt is paid off. The key is that once you pay a debt off, the money that used to go towards that payment now goes toward another debt, meaning once you reach your largest debt, the payment you're making toward it monthly should be substantial.

The second method is to eliminate high-interest debt first and work your way down. This is the one I chose, and to me makes the most sense. However, your high-interest debt may be a very large sum, and it can be hard to see the light at the end of the tunnel and stay motivated. With the snowball method, seeing results keeps you going.

7. Can You Downgrade?

This is not always a possibility but certainly a consideration. Do you have equity in either an automobile or a home? If so, you may be able to make enough profit to cover a substantial amount of debt or eliminate it. For example, let's say you drive a decked-out Land Rover. What type of profit would you make by downsizing to a less expensive SUV? Or, let's say you've owned your home for quite a number of years and have built up equity. If the home and property have appreciated, you may be able to sell it, move into a less expensive home, and still have money left over.

Keep in mind this greatly depends on a number of factors, including the market and your situation. This is not feasible or advisable for everyone.

8. Focus on True Value

Every dollar you spend extends how long it is going to take you to get out of debt. Before you make a purchase, decide if it is worth it. Focus on purchases of true value. For example, going out to eat doesn't hold any true value. It's enjoyable for the duration, and then the value is gone. Think about where that money could have gone. You could have purchased gas, made a small home repair, bought groceries, etc.

Make sure the extra money you spend is worth the trade-off of staying in debt longer. Sometimes it is, and sometimes it is not.

Follow these tips, and you will be surprised at how much more financially conscious you come. A dollar will mean more to you because being debt free equals freedom, and you can't put a price tag on freedom.

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