And How to Stay Motivated & Encouraged in the Process

If you are in debt you are going to want to bookmark this page! Here we cover the beginnings of what it actually takes to get out of debt. No tricks. No schemes. No special tools. The raw hard facts of what it takes technically and psychologically to climb your way out of the binding grasps of debt.

Part 1: Getting Prepared: Lifestyle & Budget Changes & Preparations

Save $1,000 to Start Your Emergency Fund

The statement is true… “stuff” happens. Your ability to survive regardless of the situation is your human right. Before paying off any debtor you owe yourself $1,000 to start your emergency fund. This can be helpful for all sorts of things including the following:

1. loss of a job
2. unexpected pregnancy
3. broken down car etc.

But DO NOT dip into that fund just for everyday living expenses, or extra side expenses that might come. This fund is not for those, you have to fit those into your monthly budget. This money should be put into a separate savings account that isn’t extremely accessible. No debit cards! This fund is to help you survive & be able to pay for the NECESSITIES in a true emergency. If you’re just going to spend it anyway, you’d be much better off putting that money towards debt. But having that extra emergency fund will provide you with a nice security net and give you the peace of mind to be able to start putting any extra money towards paying down your debts. You can bring on extra expenses or frivolities when the debt is gone…and wow, just for a minute think of how nice that’s going to feel!

Now First Things First…Figuring Out Your Budget (& Opening Up Room In Your Budget For Money To Go Towards Debt)

If you’re currently saying “but there is no extra money to find,” then you have to find a way to have some. There is really no way to get around this. The debts will not disappear on their own. Money has to be paid to get them to go away. If you don’t have any extra then find it. It’s worth it to live without some (or even a lot of) things if it helps you get out of debt. There is no more exhilarating feeling than paying off & finally getting rid of a debt that’s been looming overhead. I still remember the first time I sent off a check to pay a debt. Do whatever it takes to find the extra money you need. Get a second job. Eat at home. Take the bus to work. Sell your car. Have a garage sale. Whatever you can and need to do to find the money to get out of debt is worth it! You will not, will NOT regret it when you are finally living debt free.

This is the time to set & stick with a monthly budget. Figure out how much you truly need to live with. This isn’t the time to try to live “comfortably!” This is the time to scrimp, be greedy (with yourself, not necessarily others), and go without. The time to live with extra money can come later when you don’t have DEBT constantly staring you in the face every waking moment. This is the time to eat at home. This is the time to cut off HBO. To see matinees, to shop at consignment stores, and to sell your plasma (ok, that one’s not for me, but I know many people who survived in college this way, so why not now I guess?). This is the time to cut stuff out!

Look at your monthly expenses. Get all your utilities together and add them up. This also is not the time to get behind on even more bills. But now is the time to be honest with yourself. Do you really need the upgraded package with your cable company? Do you really need 5,000 text messages? Are you sure that $50/month gym membership is really that necessary? Do you even use it anyways? Why can’t you start jogging in your neighborhood each morning? If you honestly use the gym package, awesome, that’s important for your health, but you get the picture. But again remember, every dollar you cut out of your expenses is truly adding up and getting you closer to your goal. Before you can move forward in getting your debt paid off, you are going to have to start cutting out costs that at the end of the day you really don’t need.

These are the types of questions you want to begin asking yourself at this stage. Start cutting out those extra service fees you don’t really need. Then identify the ones you absolutely feel you need, and get caught up on your dues.

Add together all of your NECESSARY expenses: food, utilities, gas, mortgage, insurance, cell phone bill (unless you can live without it!), etc.

Next: Figuring Out How Much You Have Now To Put Towards Debt

Now that you’ve cut out unnecessary expenses and you know what your monthly budget is, you can figure out exactly how much will be going towards debt each month. Figure out what exactly your net income is every month (if you’re at a commission or tip-based job, get a good average). Just minus your monthly expenses from your monthly income and that is the amount that should be going to debt every month! If you were able to set up your emergency fund, then there’s no reason why any less than that should be going to debt. If you weren’t able to, then it might be a good idea to work a small amount into your monthly budget to go towards an emergency fund (remember, the same rules from above still apply…don’t forget your end goal here!).

Open Up A Separate Checking Account

Every paycheck, deposit your extra money into your GETTING OUT OF DEBT account. Now that you know how much you have to put towards debt every month, you want to make it a habit to get that money separate from your day-to-day living money. Take the amount that you figured you’ll have every month to put towards debt, divide that by two, & that is that amount that you should be depositing into your getting out of debt account with every paycheck. If you have direct deposit, most companies will now let you specify a specific amount or percentage every month that you want to be deposited into a different account. Talk to your Human Resources department at work, and if that option is available then USE IT.

You’re definitely going to want a completely separate checking account for your getting out of debt money. Now remember, this is a completely separate account. Don’t have a debit card with this account. Just have checks. If you have a debit card for it, you will end up using that money on things other than debt. Also, don’t carry the checks around with you. Keep them in a place where you will only use them when you have to (get to) get them out to pay a debt. Leave yourself NO temptation to use this money for other things! No excuses, no exceptions. You’re changing your lifestyle here to have this extra money to go towards debt…let’s get this over and done with as soon as possible.

Last Step: Get All Your Debts Together & Organized

At this point you’ve probably been getting numerous (sometimes it feels like countless) letters regarding all the debts you owe. It’s very important to get all of these together and organized. You have to be able to determine which letters go with which original debts. Depending on how long these debts have been around, they’ve probably “changed hands” several times. Basically this just means that by the time you get around to paying off many of your debts, it’s not actually the original creditor that “owns” the debt anymore. Long story short, when a creditor gets to the point where they like they won’t be able to collect money from you they will sell your debt to another company for less than you actually owe them (more on this in Part 2).

What this all means to you is that, when you’re paying off your debt, you might not be paying it off to your original creditor. So, you need to get all of your debts organized so that you pay the right person. You better believe that your original creditor will still accept money from you on a debt that they’ve already sold to somebody else! The last thing you want to do is pay off a debt just to realize that you paid the person that no longer owns the debt, so you still owe money on it. Get your debts all organized, figure out which letters go with which debts. Figure out what company currently owns each of your debts. This is pretty much whichever debt collection agency has sent you the most recent letter about your debt. When you are paying a debt off you need to make sure you’re paying the right person.

Make folders for each of your debts and put any letters for each debt in their corresponding folder. Any new letters you get, make sure they get put in the appropriate folder. This will help you make sure that when the time comes for you to pay off a debt, that you’re paying the right company.

Keep Yourself Motivated!

Keeping yourself motivated to reduce your debt is key. Another very helpful thing you can do is to think of an exciting goal or “prize” for when you’ve gotten yourself out of debt. For some people, just the thought of being able to live debt free will be enough. But, when living on your tight budget & going without, after a while you might start to lose focus & motivation. That’s why it can be very beneficial to have another big goal in mind for after you’ve gotten out of debt.

Plan what you will do with your extra money once you’re out of debt! It doesn’t matter if it’s 6 months or 2 years from now that you’ll be out of debt. It will be nice to have this extra thing to look forward to, whether it be something basic like being able to go shopping, get a gym pass, or go out to your favorite restaurant once a week, or something bigger like a vacation or a new car. You know what will help give you that extra motivation. Once you’ve gotten used to living on your new budget, it will be easy to make the transition to take that extra money and save for your big trip!

Find a picture of what your goal looks like to you (the hotel that you will stay at in Hawaii, the car you want to buy, the new pair of jeans you’ll get, even just the new pillow you’ll buy as you sleep easier with no debt to keep you up at night) and post it up in an area that you’re in often. Next to it, put how many debts you have left to pay off & get your pay out (although I wouldn’t recommend putting the amount, looking at that number everyday can cause you to lose your morale). But it’s great to see that number going down from 10 (or even 30 or 50!), gradually until you only have a few left and you can start looking forward to your reward!

Recap:

1. 1. Save $1,000 for an Emergency Fund.
   1. Remember, this is for emergency’s only!Figure out your budget.
2. Figure out your budget.
   1. Time to scrimp, be very strict, & get rid of any and all non-essentials. Do what it takes to find the money you need to get out of debt!
3. Figure out how much will be going towards debt every month/paycheck.
   1. Net Income-Monthly Expenses=amount to pay off debt with. Divide that number by 2 and deposit that amount into your Getting Out Of Debt account every paycheck. If you have direct deposit, see if your company will automatically have that amount deposited straight into that account for you.
4. Separate Getting Out Of Debt checking account.
   1. Deposit the right amount every paycheck and don’t touch the account except for when paying off a debt (remember, no debit card here!).
5. Get your debts together & organized.
   1. Figure out who currently owns each one of your debts so you know you’ll be paying the right person.
6. Stay Motivated!
   1. If just the thought of being out of debt is enough to keep you motivated, then great! If you start to lose motivation (or if you foresee that as a possibility), then come up with another reward (big or small) that you can look forward to at the end of your Getting Out Of Debt process. If it’s a big goal, it will be easy to save up for it once your out of debt because you’ll have all that extra money every month that you were using to get yourself out of debt. Either way, put a picture of your reward up to keep yourself motivated and reminded of all the great things you have waiting for you at the end of this journey!