Do you want to know how to get out of debt, but are not sure where to start? Last summer my wife and I were able to pay off all our consumer debt by reducing our expenses, increasing our income and increasing our payments.
Reduce Your Expenses
The first step to get out of debt is to find out how to save money each month. The can be anything from reducing your electricity bill to making sure you always save money on groceries. You can find room to save in almost every expense… try not buying new clothes for awhile or staying home to eat instead of heading out the restaurant.
Increase Your Income
You might have more options to increase your income than you realize. Many people might assume that the only way they’ll make more money in to get a raise at work. But other sources of income could include selling items on craigslist, having a garage sale, or more passive income streams like dividends from your investments.
Increase Debt Payments
If your serious about wanting to get out of debt, you’ll need to start paying off debt at a faster rate as you free up money or earn more income. You can pay your debts with a debt snowball, where you make a larger payment to your smallest balance until that account is paid off. This is mostly for the momentum it gives you psychologically to see some credit cards being eliminated quickly.
Instead of a debt snowball, we applied any extra money to the highest interest debt first. While it might not have been the smallest balance, I knew I wanted to eliminate the drag from high interest debts.
Have you been in debt and paid it all off? What steps did you take to get out of debt?
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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Best to start by making a complete list of expenses, investments etc etc.
You can’t get it in control if you aren’t aware of where it’s actually going.
Virata Gamany
I often tell people – they need to lower expenses or raise income, but best is to do BOTH!
I generally recommend the snowball method but what’s most important is getting intense and increasing debt payments.
In the U.S., no matter how much folks read about how to get out of debt, they would still get in debt deeper and deeper. Many folks rely on other people’s money but they don’t recognize and don’t realize it. Using credit cards is using money that belongs to someone else. The problem is when they borrow the money for 3 weeks (grace period), they never think they have to eventually return it to the original owner.
Great tips for trying to get out of debt, especially reducing your expenses, and generating extra income.
We just paid off our last bit of debt and we feel so much better. We found making extra debt payments the best strategy. The faster it went down the more motivated we were. Plus we paid less interest each month because of it which freed up money for other things.
I think the most useful advice you mentioned in this list is trying to pay more than the minimum amount of debt. I always see people doing this and saying “As long as I’m paying the minimum amount I can keep on spending”. I can’t believe it when I hear people saying this. I wish the government would pass a law that forces credit card companies to show on every bill how long it would take to pay off the respective debt if only minimum payments are made every month. This would definitely encourage people to pay off more than just the minimum debt.
This law has recently passed in Canada Faillite! From what I’ve seen, it has had quite the impact on consumers. Gets them off their butt and into action!