Living with debt breathing down your neck can be a daunting experience. Not only is owing money stressful, but it can also be extremely damaging, even ruining your credit or friendships and relationships if you are unable to keep up with it. Erasing debt may seem like an impossible task, especially if you owe a lot of money, but with a step-by-step plan and the willingness to work at it, it can be conquered.
Step 1
Figure out exactly how much you owe. Make a detailed list that includes the amount due, interest rate and type of debt (mortgage, credit cards, student loans). If you owe money to friends and family, that should go on the list too.
Step 2
Set specific goals and make decisions before you start paying off what you owe. Decide the order in which you are going to pay the debts (starting with the higher interest one makes sense), how much you can afford to pay each one and when will your payments be made. Having a plan of action will make less stressful and a lot easier to deal with the money.
Step 3
Try transferring your total to lower interest credit cards. If you have a card with a large interest rate, take advantage of offers that allow you to transfer your debt into a new card and pay no interest for the first six months or so. Do so only if you plan on paying off your debt in that time, or make sure the new interest rate won't be higher than the original once it kicks in.
Step 4
Make paying off your debt a priority and eliminate everything from your life that distracts you from that goal. Expensive hobbies, bad habits (smoking, gambling), shopping when you're sad or stressed and other money-wasting activities should be eliminated first. Find cheap or free ways to keep yourself busy by looking for events and activities at your local library and don't think of money as therapy. Use any and all money saved to pay off debt.
Step 5
Borrow money at low interest rates if your debt is large and accumulating high interest charges and penalties. You can borrow against your 401(k), get a home equity loan or borrow money from family. Compare percentages first and make sure the penalties and fees involved are worth liquidating your assets or getting into a new money agreement.
Step 6
Consider debt consolidation. This is not always a good idea, as it lowers your credit score and you end up paying money on additional fees to the company arranging the process. However, this is a good solution if you can't keep up with the minimum monthly payments for all your debts. By consolidating, you make a single monthly payment to the company, which in turn distributes the money to all your debts at arranged percentages.
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