Chronic debt means more than never having enough money to pay your bills. It also is a lifestyle, a depressing, anxiety-ridden lifestyle that can rob you of the joy of contemplating a better future. But it need not be that way. You can get out of debt if you adopt the necessary financial tools and positive mindset.

That's the purpose of's Guide to Getting out of Debt. We'll lay out for you the no-nonsense, easily achieved steps you can take to finally free yourself from the drag of never-ending debt. Once you've got your financial life under control, you'll come to see debt as it should be seen, one of a number of personal finance tools that, when deployed appropriately, adds to the quality of your life. All it takes to get started is the commitment to succeed.

In this guide to getting out of debt:
Preparing To Get Out Of Debt
Initiate Your Debt Elimination Plan
Embrace Your New Lifestyle

  1. Preparing To Get Out Of Debt

    Getting out of debt is not easy. You will need to commit to a change in your lifestyle, learn to control your impulse to spend, and resist the pressure to keep up with your friends or workmates.

    Making It Real

    In the beginning, the biggest mistake is to make a plan that is bound to fail because it is too austere. Getting out of debt does require some sacrifices, but it should leave room for a few important, albeit inexpensive rewards for the hard work you'll be putting in. The first thing to wrap your head around is the difference between non-discretionary and discretionary income. We can all agree that paying for your mortgage or rent, food, utilities, medical care, insurance and perhaps education costs are non-discretionary in that you really have to pay for these or your life will be severely disrupted.

    On the other hand, discretionary income is yours to control. Now, here is the first rule for getting out of debt: repaying more than the minimum amounts due is non-discretionary. By making the commitment to get out of debt, your monthly debt repayments must be in the same category as rent and food. Discretionary expenses, while desirable, are not required. If that means you can't go on shopping sprees or spend a day at the spa, so be it. Once you get into it, finding ways to cut your discretionary (and even some of your non-discretionary) spending can become a game in which saving money makes you the winner.

    For example, how much food do you end up throwing away each month because of spoilage? How much money do you spend on junk food that is, ounce for ounce, one of the costliest food items, not to mention the unhealthiest? We could devote this Guide to this topic alone, but we think you know how expensive guilty pleasures can be. From soda to chips to cigarettes, these items are budgetary death by a thousand cuts.

    List Your Debts

    Assuming you have come to grips with the basics, the next preparatory step is to create a spreadsheet listing all your debts, how much you owe on each one, as well as the APRs and minimum payments. You may think you know how much you owe, but unless you write it down and see how much money is going out the door each month in the form of interest, you're quite likely to underestimate the size of the problem.

    The first time you list out your debts may lead to some shocking realizations, but remember that the numbers will get better each month as you execute your debt-reduction plan. Keep the debt spreadsheet on your smartphone or tablet so it's always at the ready, in case you need to refer to or update it.

    Lower Your Interest Payments

    The final preparatory task is to lower your overall interest rate by refinancing existing debt, making 0 percent balance transfers and requesting lower APRs.

    You can check for credit cards that offer 0 percent transfers. These cards allow you to transfer your balances from other cards and then pay no interest for some number of months. Pick a card that offers the longest interest-free period and charges the smallest transfer fee. By transferring your credit card balances to the new card, you not only lower your APR for a while, you also replace multiple minimum payments each month with a single, smaller one. The savings should be used to pay down the debt, not as a new source of spending money.

    Another way to consolidate debt is through a peer-to-peer personal loan. Sites such as LendingClub and Prosper may approve you for a loan at reasonable rates (usually lower than bank or credit card rates), depending on your credit score and other factors. With one loan, you may be able pay off all your credit cards and other debts, and then repay the loan in three or five years.

    If you have mortgage with a higher interest rate, you can refinance it to get your rate down. Act quickly while rates are still rock bottom. You also may be able to lower your monthly payments when you refinance. The place to start is the excellent government website, Making Homes Affordable, that is chock-a-block with many excellent resources for helping you better afford your home.

    There is a similar story to tell for student loans, which may provide opportunities to cut your monthly expenditures. Check out the Federal Student Aid website for a number of money-saving alternatives.
    Ask your credit card companies to lower your APRs. You'd be surprised at how accommodating they can be, especially if you threaten to transfer your balances away to more enlightened card providers. The larger your credit card debt, the more savings you can realize by eliciting the cooperation of your card issuers.

    Finally, update your debt spreadsheet with the latest information to see how much money you'll save each month by adopting these steps.

  2. Budgeting

    To begin budgeting, you'll have to first start tracking your spending, especially your cash spending. Today's online wallets make this much easier. Apps such as Mint, LearnVest and several others will tell you in real-time how much you spend every day. A great idea is to use your debit card instead of cash, so that nothing escapes your records. It can pretty eye-opening to see all those little impulse buys neatly listed on your online wallet. If you do spend cash, save the day's receipts and then enter all of them that evening. The wallet apps also warn you of upcoming payments due, which can help you to concentrate your thoughts and avoid the temptation to spend.

    You'll see patterns start to develop. Are you shocked to learn you spend $250 a month on fast-food lunches? Pack a sandwich instead and pocket the savings. If you have a gym membership you never use, get rid of it. Look for online coupons when shopping, and try to restrict your shopping to sales offered in the stores your frequent.

    Your Initial Budget

    Armed with all your spending information, you're ready for your initial budget, using a spreadsheet or your online wallet program. Enter you net income first. This is the income that actually goes into your bank account, after taxes, retirement account contributions, garnishments, etc. Next, enter your non-discretionary expenses. If you can find ways to cut these costs, such as less expensive food and clothing, more economical use of your utilities, a cheaper phone plan and smarter shopping, now's the time to commit to these changes.

    Compare your non-discretionary expenses to your monthly take-home pay. If your required outflow is greater than half of your inflow, you might want to consider lifestyle changes, such as new living accommodations, perhaps taking on a roommate. Once you get your non-discretionary expenses at or below the 50 percent mark, put 20 percent of your remaining take-home pay to debt reduction. In effect, you are making debt repayment a part of your non-discretionary spending.

    Divide the remaining monthly income by 4 1/3 to get your weekly discretionary spending. Think free museums instead of movie theaters, nutritious home-cooked meals instead of expensive restaurant food, and public transportation or walking instead of driving your car everywhere. (If you live downtown, maybe you don't even need a car). The budget numbers may not be perfect at this stage, but that's alright, you can refine them over the next couple of months.

  3. Initiate Your Debt-Repayment Plan

    The budget tells you how much you will spend each month on debt repayment. Armed with this number, pull up your debt worksheet and find the item with the highest APR. Pay the minimum amounts on all other debts, and use the remainder of your debt repayment amount on your highest-APR debt until its gone. Repeat with the next highest-APR debt. If the highest-APR debt is large, you can try a different approach: pay off the smallest debt first, following up in order of smallest-to-largest debt balance. The advantage of this method is that your savings will snowball as you pay off the smaller debts first and apply the savings to your larger debts.

    Stick To Your Weekly Allowance

    To succeed, you must stick to your weekly allowance. This requires vigilance and commitment. It's easy to rationalize overspending, so don't do it. We mentioned earlier that you can use cash. One great way to discipline yourself is to take out your weekly allowance in cash. You must make the cash last until the beginning of the next week. If you run out a day or two early, try to find creative ways to get through without spending money. You'll quickly develop the skills and instincts to make your allowance last for seven days. Remember that spending with a credit card can encourage overspending. If you must use a card, don't forget to enter all transactions into your budget tracking.

    If you use an electronic wallet, this may be performed for you automatically. If there is a special event coming up next week, try to put aside some of you allowance this week to help pay for it. If you still go over your budget, cut your allowance until to get back to even.
    Remember to update your budget and your debt worksheet every time you pay off a debt. That's the kind of positive reinforcement that can keep you on track toward debt elimination. Also, a mini-celebration would be appropriate at this time.

  4. Embrace Your New Lifestyle

    Folks who lose weight and keep it off don't diet, they make permanent changes to their eating habits, whether that's swearing off sweets or eschewing fatty (and expensive) steaks. Here are a few simple suggestions to enrich your lifestyle without depleting your money:

    • Instead of going out to eat with your friends, offer to host a pot-luck dinner in which everyone brings a dish.
    • Movie night can be courtesy of Netflix rather than your local theater. At less than $10 a month, Netflix or one of its competitors is a great deal.
    • When you can't avoid a tax ride, try Uber instead. It's cheaper and often more convenient.
    • Speaking of Uber, consider becoming a driver yourself. If you have a car and some free time, you can increase your income and meet nice people in the process.
    • List that extra couch in the den on Airbnb. There are plenty of thrifty travelers who will pay you cold hard cash for a place to sleep for a few days.
    • Take full advantage of tax-favored retirement accounts, such as traditional IRAs and 401(k)s. Contributions are tax deductible and you can look forward to a nice retirement nest egg, especially if you start early.
    • Join the ranks of the coupon clippers. You'd be surprised at how much money this can save you each week.
    • The vegetarian lifestyle is healthy and relatively cheap. You don't have to go whole hog, but any steps you take in this direction will accrue benefits.
    • See the USA first. It's cheaper than fancy trips to other continents.
    • Spend your money on your passion. Your allowance is precious, so spend it on the things that really make you happy in the deepest sense. This is a great way to maximize the utility of your money and to help you get out of debt.

Once you've gotten rid of your debt, resolve to never go back to your overspending ways. And remember to keep reading the daily blogs for more money-saving tips.

Additional Resources At