How Do I Get Out of Debt?

I'll start with just a few words about how you got into debt in the first place and why you shouldn't beat yourself up over getting into this predicament.

For many of us, we debt is something that crept up on us. We didn't set out to bury ourselves in mountains of unpaid bills. We didn't particularly decide that we loved having the telephone ring all day long from collectors calling. Sometimes, it was something simple that started it all.

A lot of couples start by trying to build their credit. Face it, it's difficult to buy the bigger things in life without a good credit history. So, they apply for their first credit card and make a few purchases. At first, it's fun. They buy a couple of things and quickly pay them off. However, they soon realize that they don't build a credit history by paying off their bill the minute they get it. They want to see that you can be trusted to owe money and pay it out over time. Of course, this allows the credit card company to make some interest. Before they know it, they owe a couple hundred dollars.

Some couples are able to dance this dance for years, sometimes decades. With each passing year they become more and more confident they know what they're doing and chances are they are making more money nowadays. As they've started a family their purchases have gotten bigger and come around more often. Before they know, they owe several thousand dollars.

Then, the unplanned "thing" happens. That "thing" comes in various forms. It could be:

• A pregnancy
• Loss of a job
• Divorce
• Death in the family
• Changing jobs that requires a relocation
• Changing jobs that results in a reduction in pay
• Illness or disability

Worse yet, several of these can hit at one time. Then, what do you do? You find yourself beginning to have trouble making the minimum monthly payment. Often, the first time you're even a day late on one payment, or failed to make the minimum payment, they will hit you with a late fee of $25-$40 and/or raise your interest rate. So, just when you're having trouble paying you know have more debt as well. It's a vicious cycle.

Unless you've just got crazy and charged up several thousand dollars in one evening, it's probably safe to say that you didn't intend for this to get out of hand. You don't need to let it ruin your life. You can dig yourself out of this. Others have done it and so can you.

The first step in getting out of debt is to assess how much debt you owe. You're going to have to be honest with yourself no matter how painful it is. Gather all of your bills and statements and start making a list. I find it helpful to use a columnar pad and use a column for each bill. If you're not familiar with a columnar pad it's just a pad of paper that is broken down into rows and columns, like a spreadsheet, that allows you to easily track items.

As you're writing down each bill, make note of:

• The name of the creditor (who you owe the money to)
• How much you owe and as of when
• APR or annual interest rate (this may shock you if you haven't looked in awhile)
• Due date
• Credit card companies are now required to show you how long it will take to pay off your credit card if you only make the minimum due amount. You could take a look at this too if you haven't.

Now that you know the amount, how do you feel? Overwhelmed is probably an understatement. You probably look like Gustave in this photo, right?

If you had really good credit prior to a life-changing event, some companies will work with you. However, that is becoming more difficult these days simply because so many people are in that category. It's worth a shot though. Contact your creditors and explain your situation. See what they're willing to do to work with you. Don't promise something you can't deliver though. They will never trust you again if you lie to them.

If they are unwilling to work with you, then you'll have to do the best that you can to begin paying them off. Some suggest that you start by paying the one with the most interest. Some suggest you start with the one that is the quickest to pay off to get it out of the way. The way I see it, pay whichever one makes you feel like you're making progress. If you're a numbers person and like knowing you're saving more interest by paying the one with the highest interest rate first, start there. If you'd just like to feel relieved no one is paid in full, then start with the lowest. I promise you if you choose one wishing all along that you chose the other one, then you'll be miserable and it will bug you constantly.

As you pay one off roll the extra you now supposedly have into the next bill you want to pay off. I say supposedly because you have to be very disciplined to keep paying what you've been paying because if you're like most you're always looking for that little bit of breathing room in order to have an extra dollar in your pocket for luxuries or indulgences you've been putting off. At least try. If it makes you feel richer to hold back $5 for yourself, go for it.

Anytime you get extra money, like a gift or bonus, think about what you could pay off with it and get out of the way.

These are some tips that I hope you find useful when it comes to paying off your debts.

Your mindset plays a big part in your success. Having a millionaire mindset can help you think about things in a different light. I'll give you some things to think about.

• Do you think a millionaire worries that he has a mountain of debt? I know you assume that a millionaire must surely not have any debt. If he did, wouldn't he just pay it off? That's where you're mistaken. Millionaires are millionaires because they have successfully learned to think like a millionaire and have leveraged other people's money to their benefit. Debt is not bad. Unmanaged debt can be. The millionaire doesn't worry about his debt, he looks for improved ways of managing his debt. A millionaire never makes a New Year's resolution "to become debt-free".
• When you're looking to buy something or make an investment, ask yourself if you think a millionaire would make that same purchase or make that investment. If you don't know the answer to that, then it's time you found a millionaire to read up about. If you're not thinking like a millionaire how do you expect to become one? I realize not everyone claims to want to be one, but if you knew you could be, wouldn't you try to be?
• The problem has never been that you have too much debt. You just haven't had the income to properly manage it. Strive to improve your income and the debt will begin to be in perspective and you'll find it easier to pay it off. Stop thinking about how to reduce your debt and instead how to increase your income!