Get out of debt

Debts keeping you awake at night?

Bill collectors hounding you, demanding immediate payment?

Are you finding that there's always month left over when the pay runs out?

You're not alone. Millions of Americans are facing mounting debt problems. Many feel that they have no way out -- they've borrowed to the hilt, and they're falling further and further behind. Bankruptcy looms as the only solution.

The average adult American owes over $13,000, and that's not including mortgages. We live in a society where the acquisition of "things" has become the pasttime of the rich and the not-so-rich. Television, for decades, has been trying to convince us that we'll be happy with more -- bigger houses, bigger cars, more diamonds, more gadgets, designer this and designer that. More toys. We all seem to want the biggest and best (and most) of everything.

Credit cards have made this avarice of "things" possible. "Put it on the plastic" has become our mantra. Put it on the plastic -- we'll pay it off over the next little while. But we don't pay it off. Because we keep buying more -- adding more debt on the plastic.

Credit card companies encourage this reckless spending. As you max out your credit cards, you find a huge part of your take home pay is being eaten up by credit card payments. Pretty soon, you find yourself paying the minimum and not much more. When you pay the minimum, you're maximizing the profits of the credit card companies. You end up guaranteeing them that you'll be paying them hundreds of dollars a month for the rest of your working life. That super spiffy home theater system that you needed -- that cost "only $10,000 installed" -- will end up costing you over $30,000 if you only pay the minimum. Is the home theater system really worth $10,000? Is it really worth $30,000?

First steps to get out of debt

The first thing you must do if you want to get out of debt, is to stop spending frivolously. Stop acquiring things. Stop spending on luxuries of any kind. Don't eat out. Trade your car in for a cheaper model that's more frugal on gasoline. (Can anyone justify 16 miles per gallon when gasoline is almost four dollars a gallon? That's more than a penny for every city block!) Stop buying designer anything. Actually, do the best to stop buying period.

Stop using your credit cards to make purchases. If you need something, pay cash. If you don't have the cash you need, then don't buy. Try coming up with cheaper substitutes for what you do buy. Instead of going out to lunch, brown paper bag it. Instead of going to the movies, rent a video, or better still, borrow a video from the library. Whatever you do, stop spending.

Create a plan to get out of debt

The next thing you need to do is to create a budget. It sounds like a daunting task, but it is probably the most important thing that you can do to get out of debt without declaring bankruptcy. Just sit down with a blank piece of paper, and write down everything that you bought. Include all the coffees and muffins and bridge tolls and magazines and tabloids that you buy out of habit, not out of need. You'll be surprised at just how much you spend on "little things". They may only be 3 dollars here and 4 dollars there, but in the course of a month, they add up to hundreds of dollars a month. Be honest when writing up your list -- in your mind, go over each day and think of all the things you bought. Leave nothing out. Write down everything to the penny. If you take care of the pennies, the dollars will take care of themselves. Then add your living expenses -- rent or house payments. Don't forget the utilities, phone bills, and cable TV (or satellite). Write them down too. How much did you spend on gas this month? Put that down to. Include everything. If you truly want to get out of debt, you must be brutally honest. And detailed.

Add up the expenses. Write down your take home pay for the month. Add in any additional money that comes in regularly. Total up your monthly income. Subtract the expenses (don't forget the credit card payments!). If you have a negative number as an answer, you're in serious trouble. Even if it turns out that you have more income than outgo, your situation may be precarious. People in good financial health have more than 10% of their take home pay left over after all of their expenses. If you're reading this, I can safely assume that you're not in good financial health.

The next phase in budgeting is to review your expenses and start deleting the ones that you don't need. These are almost always impulse purchases. As we saw earlier, you're probably spending a couple hundred dollars a month on impulse purchases -- the coffees and doughnuts and all the other "little things". Redo your math with those items deleted. Are you in the black yet? If not, then you have to start being brutal. You have to start cutting things that you've been taking for granted.

Pay TV? Cancel it. For that matter, unless your TV reception is pitiful, cancel the cable. You might end up saving $60-$100 a month, just by doing that. High-speed Internet access? Unless you need it for work, consider cancelling it and switch back to dial up. Dial up access is now down to about $10 a month (less, if you look for it). If you have two cars, drive the more frugal one for your commutes. Doubling your gas mileage cuts your gasoline costs in half. If you live in a city with really good, reliable public transit, consider taking the bus/train/subway a couple of days each week. That way, you save not only on gas, but on parking as well.

Don't stop the cutting once you've broken even on the income/outgo equation. Breaking even just means that you're now able to tread water. You don't want to stay where you are -- you want to get out of debt. Just look at what you're paying the credit cards each month. $200 to $500 a month. Think of what you could do with that money.

Your budget never lies. Follow the plan to financial freedom

Once the bloodletting -- I mean expense cutting -- is done, follow it to the letter. Don't make exceptions. Remember that impulse buying (and mistaking "want" for "need") is what has gotten you into this mess to begin with. Strict adherence to your new budget will enable you to pay more on your credit cards every month. The more you pay, the sooner it gets paid off. The sooner you're debt-free, the sooner you can start treating yourself again -- but only on a cash basis. Remember the rule about the use of credit cards -- if you don't have the cash to buy something, don't buy it. Save up for it. Credit shouldn't be used to acquire things. It should be used only in the case of emergencies. Paying for an unexpected car repair on your plastic is okay. Paying for a third TV set with your plastic isn't.

Many experts advise against declaring bankruptcy. Many also advise against various forms of debt consolidation loans. And be aware that some credit repair/debt counselling companies are scam artists. Be careful! Making a concerted, consistent effort in greatly reducing your spending, coupled with strict adherence to a good, honest budget and some credit tricks will often be enough to turn your situation around, and to get yourself back onto your financial feet again.

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