Getting Out of Debt Tips

Start a spending diary. Every time you pay money somewhere, whether it is a cup of coffee or the mortgage payment, track it in your diary. The ideal length of time for a diary is a month. This will allow you to see where a month's worth of income is going. You may be surprised to find out how much money you are spending frivolously.

Know your debts. Know who you owe and how much you owe. This may put some people off because they feel it will be overwhelming. While they may prefer to bury their head in the sand, the need to know where you stand financially is crucial to getting out of debt.

Establish a budget. Now that you know how much you owe, it is time to establish how much money you have to pay off your debts. Write out what you have coming in as income every month and what you have to pay out. Income is counted as any amount of money that comes in, such as paychecks, child support or alimony. Outgoing debt is anything that you have to pay out each month, such as mortgage, utilities, groceries and gas.

Cut costs where possible. Now that you have created a budget on what needs to be paid each month, it is time to go back to the spending diary you created. Go through and determine what are necessities and what are luxuries. Obviously, the mortgage and some utilities are necessities. But what about the cable and the daily lattes you may be buying? Are they really necessary? Determine what items you absolutely need to survive. Cut out all the rest.

Attack the high interest. Now that you have freed up more income by cutting out the luxuries, it is time to determine what you will begin paying on. While it may seem to make sense to start with the lower balance first and get it paid off, it is actually better to attack the higher interest rate debt first. This will save you money in the long run. Take the extra money that you have from your budget and apply it to the high interest rate debt. Once you have paid off the high interest rate debt, take all the money that you were paying on the first debt and start applying it to the next highest interest rate debt. Once that debt is paid off, continue down the line until you are debt-free.

Maintain a debt-free life. Once you have paid off your debts, cut up any credit cards you have. You may consider keeping one for emergencies, but do not leave it in your purse or wallet where it is easily accessible. Also, make sure it is a credit card with the lowest interest rate. However, avoid using the card if at all possible. Do not cancel your credit card accounts. This will have a negative affect on your credit score. Keep the accounts open, but cut up the cards so you do not use them. Now that you have freed up all the money from your previous debts, you will have more cash to spend on purchases. To keep yourself debt-free, ask yourself before each purchase if it is a necessity or a luxury. If it is a luxury, make sure you are paying with cash.