When you’re overwhelmed by a mountain of debt, whether due to a loss of income, excessive spending, or medical expenses, it can be very difficult to figure out how to get climb out of debt. While you probably can’t tackle it all at once, you can take small steps right away that will get you on your way to being debt-free. Below are a couple tips to get you started.
Don’t take on any new debt.
- The revolving cycle of debt may cause you to use one credit card to pay another, take cash advances to pay bills, or use credit cards to cover daily expenses after your checking account has been depleted by paying bills.
- Each of these activities will continue to dig you deeper into debt. In order to stop the cycle, you will need to budget your expenses and determine what you can, and can’t afford. If the resulting “can’t afford” pile consists of necessary expenses and bills, try contacting your creditors to explain the situation and temporarily reduce your payments and/or interest rates until you can get back on your feet.
Choose one bill at a time to pay off, and pay double the minimum every month.
- By focusing on a single bill that you can pay off, you will be able to achieve a short-term goal that will not only free up more money every month to pay off other debts, but will make you feel like you are getting somewhere and not just spinning your wheels.
Look for new sources of income.
- This is a great time to clean out your basement, attic, or closet, and uncover the items that may have resale value. Whether you host a yard sale, sell clothes on consignment, or offer more valuable items in an online auction, you may be able to generate a small savings account that will help you get back on your feet. But whatever you do, be sure to not spend this money on any new purchases. It should be used to pad a savings account or pay off debt.
Find the leaks and plug them.
- Write down everything you spend for a week, and determine where the leaks exist in your budget. Maybe it’s a morning coffee or take-out lunch at the office that can be brought from home. By determining where your money is actually going, you will be able to develop a real budget and cut those costs that add up over the months and years.
Invest in Yourself.
- In addition to making a strong effort to pay down existing debt, you should also focus on putting 5-10% of every paycheck into a high-interest savings account that is somewhat out of reach. By keeping your savings out of sight, you will be less likely to spend it.
- In case of emergencies, you’ll be able to pull funds from your savings account, and not continue to build up the debt that you are working so hard to reduce.
For more tips on reducing debt, increasing your savings, and creating a budget you can stick to, check out these resources from Suze Orman and CNN Money.