KYTX CBS 19 Tyler Longview News Weather Sports10 steps to getting out of debt

By Andrew Housser

Making a New Year's resolution to get out of debt is a time-honored tradition. Unfortunately, many people abandon their resolutions within weeks of making them. The secret to succeeding with any resolution is to start with a plan, and a serious plan is indeed the best way to conquer debt and begin saving for a healthy future.

If you have promised yourself to stop racking up debt or worrying about collections calls -- once and for all -- try this 10-step process to resolve your debt.

1) Find out exactly what you owe.

Sometimes, bills seem overwhelming and people opt for denial instead of clarity. The first step is to get a true picture of how much you owe, and to which creditors. Add up everything you owe. Include your mortgage, credit card debts, auto loans, student loans, personal loans, payday loans, medical bills, and any overdue amounts for utilities, insurance, etc. The amount may be eye-opening.

2) Determine how much you can pay.

List your monthly income, and your monthly necessary expenses. These expenses include shelter, basic food, utilities, transportation necessary for your job, basic clothing, etc. The difference of income minus necessary expenses equals your discretionary income. From this amount, you must pay all other expenses -- entertainment, eating out, shopping, travel, cable TV, phone service -- as well as debt.

3) Make some decisions.

Set your debt-paying priorities. Life's necessities -- food, shelter and utilities -- are most important. For many people, a vehicle is necessary for transportation to a job. After those payments, select where to allocate any extra funds to get out of debt fastest. Aim to pay payday loans first, and then credit cards. Some people are comfortable carrying a mortgage and paying student loans off over their established terms (often 15 to 30 years). Others want to make a plan to eliminate all debt as quickly as possible.

4) Stop adding to your debt.

Avoid getting into more debt by using cash, checks, debit or electronic withdrawal from your checking account (such as PayPal when shopping online). Take credit cards out of your wallet and delete credit card information from online shopping sites. Also, avoid temptation -- throw away catalogs and advertising circulars without looking at them, and unsubscribe from e-mail offers. Note: Refrain from using credit cards, but do not close the accounts; this could lower your credit score by reducing your available credit.

5) Set up a payment schedule.

Beside each bill you listed in Step No. 1, note the payment amount, the interest rate and the due date. Write down how much you will pay each month to each creditor. Pay at least the minimum amount on each bill. To eliminate debt, pay any extra funds you have available to one debt until it is paid off. Then transfer the "extra," as well as what you were paying on that debt, to the next bill until it is repaid, and so on. Some people like to pay off the smallest balances first, to get the fastest sense of accomplishment. Others like to pay the debt with the highest interest rate first, in order to minimize interest fees. Either method works, as long as you put a consistent effort into paying off the debt.

6) Scrutinize your expenses.

Many people who get serious about getting out of debt can "find" $100 a month or more by bringing lunch from home, giving up cigarettes or alcohol, bicycling or carpooling to work, eliminating cable or satellite TV, cleaning their own house, and giving up subscriptions to movie services, music services, magazines or paid websites. Trim utility bills by turning off appliances and lights and turning down the thermostat. Try store brands, use coupons, and avoid paying for expedited shipping or "convenience" fees. Keep notes on what you save, and apply that amount to your debt.

7) Keep track of your progress.

Use a spreadsheet or just pencil and paper to track how much debt you have paid. Note the month and starting total balance, and update it every month. In the first few months, it might not feel significant. But after six months or a year, you will make big strides. It is also a good idea to get your free credit report once a year. Check for inaccurate information. And, as you get out of debt, the score should go up.

8) Create an emergency fund.

Put some portion of your income into savings for emergencies. Most financial advisors suggest savings should cover three to six months of necessary living expenses. But even a few hundred dollars to start can prevent you from going into debt when you face a medical bill, auto repair or other unexpected expense. If you can save as little as $25 per month, you would have $300 at the end of the year.

9) Prepare for the future.

Being unprepared as you get older could mean remaining in debt as you age -- a frightening prospect at a time when most people hope to scale down their work and face the possibility of higher medical costs. Set goals that will help prevent debt in the future. Invest in a retirement fund, make prudent health care choices, and plan to pay off your home prior to retirement, if possible.

10) Get help if you cannot pay your debt.

If you cannot afford your debt payments, consider getting professional help. Depending on your individual situation, you might benefit from a debt management plan, or from debt relief help from a consumer credit advocate. For those in serious debt situations for whom debt management or debt relief services cannot help, bankruptcy may be the right solution. Discuss the option first with a bankruptcy attorney licensed in your state.

Beyond its financial implications, debt can create a great deal of stress and impact the decisions a person makes. Getting out of debt makes financial sense and creates freedom. Start paying off debts now, and you can build a better future for yourself -- in 2012 and beyond.