We All Want to Get Out Of Debt and Have a Better Future

But how do we begin? For those who are buried under thousands of dollars of credit card debt, medical bills, and other unsecured debt, it may seem impossible. Combined with the current economic climate and shrinking paychecks when it is difficult enough to pay the monthly bills, this creates a frustrating and overwhelming situation for millions of people. Chinese philosopher Lao Tzu said, "The journey of a thousand miles begins with a single step", and that is the approach we need to take to these bills. It may seem impossible, but the only way to get there is to start.

You can begin by tracking your spending. Often, we don’t realize exactly where our money goes. By recording every expenditure for about two weeks, you can see what you are spending – and more importantly, you can see ways to cut back. You may not realize how much you are spending when you stop each morning and buy a coffee and snack for your commute. Simply making this at home will save you hundreds of dollars a year. This may seem minor, but if you look at all your spending habits, you can spot areas that also drain hundreds of dollars a year from your wallet – and this starts to add up to significant savings.

Many people do not have a weekly or monthly budget. When you are living on credit cards, it is easy to overspend. It just gets added on to the balance…what’s another few dollars when you already owe thousands? This type of thinking perpetuates the debt cycle. Allot yourself a certain amount of cash each pay period and stick to that. When the money runs out, no more treats, no more coffee, no more impulse buys. After adjusting your spending habits, you will start seeing you have money left over at the end of the pay cycle. Great! Put this towards your outstanding balances.

And now to tackle the major problem. Spending habits account for much of our debt load, but sometimes life happens. We may have a large medical bill or other expense that could not be avoided. You shouldn’t view debt as “your fault” because that is not productive. Rather it is your responsibility. Many have heard of Dave Ramsey’s “debt snowball” method, where you pay as much as you can over the minimum on your highest balance credit card or loan. Each month you do this, and when you pay off that bill, you move on to the next. The key is to apply the money you were paying to the previous bill to the next one. In this way, it snowballs.

The "debt avalanche" system is very similar but instead of paying your highest balance bill first, you order them according to the interest rate. The theory here is that you will save money by eliminating those with high interest rates. This is another great system, and the choice really is yours. Some people find it motivating to pay off smaller debts first. Some people find it a relief to see their huge balances decrease every month. In general, however, attack the bills with the highest interest rates to save the most money in the long-run.

It can take awhile before you start seeing your balances decrease, but keep paying according to your plan. You will notice differences. When you do pay off a credit card or loan, however, do not absorb that “extra” money into your everyday budget. That is bill money. You lived without it before, and you can live without it now. Put it on the next bill in line, and you will see yourself becoming closer and closer to debt-free living.

The best tip for debt reduction is to start immediately. Do something right now that will help your financial situation. This could be making a budget, speaking with a debt management counselor, or making an extra payment on your highest interest credit card bill to start the credit repair process. One small step allows you to take a bigger step tomorrow.