Debt is by far the largest financial problem people encounter today and many people want to know how to get out of debt as fast as they can.
What may seem like a little extra spending on credit cards can become a big problem when the bill doesn’t get paid at the end of the month. Debt can also exist in the form of home mortgages, car loans and student loans. All these debts can make it difficult to live comfortably as well as impact your ability to give, save and become financially free.
Check out this anonymous quote that sums up the debt situation in society today -
We have so much debt in our nation that the average person has been described as someone driving on a bond-financed highway, in a bank-financed car, fueled by credit-card financed gasoline, going to purchase furniture on the installment plan to put in his mortgaged-to-the-hilt home.
Are you perhaps feeling you need to do something about your debt problem? Perhaps you’re tired of creditors calling? Maybe you can’t pay bills because of all the required minimum credit card payments each month. Or, maybe you’re just tired of feeling the pressure and extra weight debt demands of people.
Often this point comes when the situation has become too big to manage. Oddly enough, this is sometimes a good place to be in your life. Why? Most people who haven’t hit this point [often referred to as rock bottom] still aren’t quite motivated enough to make some serious changes and sacrifices.
However, changes and sacrifices are required for paying off debt and improving your financial life. Only at this point can someone dig deep inside and begin to realize they may have to change some behaviors before their situation can improve.
Common Causes of Debt
We realize there are some special circumstances that cause debt. However, common credit card debt, in particular, can be caused by two things:
- Lack of contentment which results in spending problems.
- Not having a big enough emergency savings account that protects against tough times.
The first step to getting out of debt is recognizing your behavior might be the problem. Ouch! That may sting a little bit. Most people don’t want to admit it, but it’s often true. We’re all responsible for making our own financial decisions, right? You might choose to spend with a credit card when you don’t have the money (perhaps impulsively), or you might choose to sacrifice saving new car payments or buying more house than you can really afford.
In regards to spending, your behavior has to change to avoid spending more than you earn each month. In fact, you need to spend a lot less than you earn to have enough for saving and and other financial goals. Most people agree you need to be saving at least 10% per month either building an emergency savings account or investing for retirement. You may even need to increase this amount to 15% depending on your goals and age.
Tips to Change Spending Behavior
Consider these practical tips to evaluate and change your spending behavior (if that’s the cause of your debt) in order to become debt free:
- Look in the mirror, but talk to someone else too. There is nothing better than getting an unbiased opinion from a counselor or trusted adviser about your debt and spending situation.
- Come to the conclusion you have to sacrifice to make changes. It’s easy to get into debt, but not easy to get out of debt. You might have to work extra or sell some things, but remember it’s not forever.
- Remove temptations. While we can always strive to do better, we’ll still make mistakes if temptation lingers in front of us. So, remove temptations such as credit cards (cut them up or freeze them), trips to the mall to relieve boredom, absorbing yourself in advertising often found in popular magazines. If someone is serious about stopping a bad drinking habit they don’t go to the bar and watch others drink!
- Learn to say no! This is not an easy thing to say, but if you can really evaluate what you spend money on and learn to say no when you don’t need it, you can begin to save more money and find you don’t need credit cards to help you get by each month.
Organize to Get Out of Debt
Many people don’t know exactly how much debt they have, who they owe, when they will have their debts paid off and the interest they’ll be charged along the way. You may not be a naturally organized person and that’s okay. Such skills required to organize your debts can be quickly learned by following the right steps and using the right tools.
It’s important to show creditors and lenders that you’re organized and you have a plan to pay them. Otherwise, your situation could escalate quicker which might result in a lawsuit.
Follow these steps to get your debts organized and ready for your debt payment plan:
- Gather up all your credit card statements, car loan statements, etc. In some cases you may need to go online to get the information, or even call the customer service department for your lender or creditor. You can’t move forward without collecting the necessary information so work hard to get everything pulled together.
- Separate all statements into separate stacks on your kitchen table.
- Now, order them by date with the most recent statement on the top of the stack.
- Once you have them in order and in separate stacks, put your debts in order from least amount owed to largest amount owed left to right on your kitchen table.
- Finally, you’re going to look for specific information on each of the latest statements to complete your debt list.
Here’s the specific information you need to collect from of each of your most current statements:
- Person or company owed
- Contact name or phone number
- Pay off amount
- Payments left
- Monthly payment
- Date due
- Interest rate
Where do you put this information? Simply download this free debt list from Crown Financial Ministries and record the information using a pencil or pen. You’ll now have your most important debt information on one sheet of paper!
Finally, don’t just take all those piles of statements and throw them in your desk drawer. Instead, put each set of statements in a file folder labeled appropriately with the lender or creditor’s name on it. Make sure you put it in a place you can regularly refer back to as needed, or until the debt is paid. This will also be the folder in which you store any letters or information from the lender.
Get Out of Debt Payment Plan
Once you have your debts organized, you can create your debt payment plan and determine when you’ll be debt free.
A good tool will allow you to make adjustments to your plan. For instance, you should be able to see the effects of increasing your monthly commitment to paying off your debt. You should also be able to decide if you want to pay off your debt using the debt snowball or highest interest first approach.
You will find a lot of debt payment tools and spreadsheets on the internet, but one our favorite debt payment plans is SavvyMoney. It has a lot of key benefits mentioned at the beginning of this guide. See for yourself by getting the FREE trial of SavvyMoney.
SavvyMoney – SavvyMoney is an online service that helps you build a personalized debt payment plan to get out of debt. SavvyMoney is not debt consolidation, credit counseling, debt relief or debt settlement. SavvyMoney helps you get out of debt on your own by creating a personalized payment plan and saving money on interest payments. The service helps you stay on track towards your goal each month and finds ways to speed up your debt payment plan. You’ll know exactly what to pay on your debt and your debt free date. It also provides the option of either paying off debt by highest interest first or by lowest balance.
- Always know your debt free date
- See the results of your hard work
- See how how much you save in interest
- Have a clear road map to your debt free date with tips and guidance
- Easy to use customized debt plan
- Link your accounts in a secure fashion online so they automatically update as you make payments
- Choose your debt payoff strategy (debt-stacking, snowball, or your own customized plan)
- Get payment reminders and monthly progress reports
- Perform goal setting and progress tracking
- Get recommendations to accelerate debt pay-down
- Use a support community of like-minded people working to pay off debt
- Use the Ask an Expert SavvyMoney forum
[box type="info"]14 Day free trial of SavvyMoney[/box]
Crown Financial Ministries also offers a some calculators that can be helpful in creating your debt payment plan and analyzing your situation.
- Accelerated Debt Payoff Calculator
- Debt Calculator
- Debt Investment Calculator
- Debt Payoff Goal Calculator
Debt Payoff Methods – Lowest Interest or Lowest Balance First?
Should you pay off lowest interest debts or lowest balance debts first? This is a common question we feel is important to address for you.
The following is an excerpt from a book called: The Skinny On Credit Cards, by Jim Randel. It sums up the topic quite well if you’re questioning the best approach:
Once people see that they can work their way out of debt, they gain energy and momentum. For this reason, some commentators recommend that in paying down debt on several cards, people should target the credit with the lowest balance. In this way, they see the results of their efforts more quickly, giving them the impetus to keep working hard. Other advisors suggest that people pay off the card with the highest interest rate first. This of course, makes economic sense and is the conventional wisdom.
“(Paying off the card with the smallest balance) doesn’t necessarily jibe with conventional wisdom that says you should first pay off the card with the highest interest rate. Yet by concentrating on extinguishing the smallest balance first, you see more quickly the fruits of your labor. That will keep you motivated.” The Wall Street Journal Personal Finance Book, Jeff P. Opdyke (Three River Press, 2006)
Pay Down Debt Boot Camp
Contact me if you have any questions about this guide or are struggling to pay off your debt. You might also enjoy my Pay Down Debt Email Boot Camp that provides 7 emails in 7 days to help you become debt free. The email boot camp has some bonus content you won’t find in this guide, including whether or not you should use a debt settlement company to get out of debt.