6 Steps to Say Goodbye to Debt

In August, the average American had $6,775 in credit card debt–this does not have to be you. Living with debt should not be a necessary evil in your life and whether you are $80 or $8000 in debt, right now is the time to face your debt and take control.

Start taking steps to understand where you are spending, building a budget you can stick too, and determining the best way to pay down your current debt. Here are 6 simple steps to put you on the path to debt-free living.

1. If your credit card bills are full of weekend shopping sprees and you find yourself eating out every night, you may already know where the overspending is happening in your life. The first step to dealing with debt is to identify areas where you are overspending that are not spending priorities—for example, rent and utility bills are a must, whereas an expensive cup of coffee every morning is not. Take notice of even the small, unnecessary expenses– they will add up very quickly.
2. Once you see where your spending potholes are, create a personal budget and be proactive in mapping your way to a healthy financial future. Figure out how much bills and taxes take out of your monthly income, and develop a responsible spending plan from what you have left over. Estimate any other additional monthly expenses like grocery bills and transportation, add a savings cushion for any emergencies, and apply remaining cash to pay down debts. Free online budgeting tools like Mint, Geezeo, and Wesabe can help you organize your budget.
3. Remember to stick to your budget. Keeping track of your actual spending over the month will help you see where you are veering off-course of your spending plan, and keep a close eye on the areas you identified in Step 1 to keep yourself from falling into old spending habits.
4. Limit credit usage so you can free up more money to pay off your debts. Keep ATM visits as infrequent as possible, stop spending on impulse and unnecessary purchases, and avoid late night online shopping all-together. Use your credit card for only small purchases you plan to pay-off in full each month. Or, consider credit card alternatives like debit cards, secured cards, pre-paid cards, or simply sticking to cash so you don’t add on credit debt.
5. While you are moving forward with your monthly budget, you should be managing your past debt too. Talk to your creditors to try and lower monthly payments and possibly look into debt consolidation to pay off your debt faster. Credit counseling is an option if you feel overwhelmed about dealing with debt on your own, and only consider bankruptcy as a last resort to unmanageable debt.
6. Now that you’ve freed up some funds and on your way to paying off your debts in full, its time to repair any damage from the past and put your new healthy credit habits to building your credit history. Reducing your debt, paying credit card bills on-time, and staying low on your credit utilization will help turn your new, positive credit history into a healthy and happy credit score and credit report.