Top 7 Steps to Wipe Out Debt

Have you ever thought of what is would be like to live totally debt free? Wouldn’t it be great in spite of the economy to feel financially secure and not dependent on credit? Rather than paying a major chunk of money each month to principal and interest, what if that money could be used for vacation plans, new clothes, donated to a cause of your choice or put into savings for financial peace of mind?

Whether you have a tall mountain or a small hill to climb getting yourself out of debt can be done. Here are 7 steps to help you wipe out your debt:

1. Analyze spending:
   
   Write down one month of expenses as you are spending. Stick a note card close to your cash, debit card and checkbook. Every time you spend or receive money write the amount and purpose down on a note card. Transfer this information to a spreadsheet into designed categories. At the end of the month total each category. This exercise helps you be more conscious of each dollar that comes in and goes out.
   
   
2. Commit not to use credit:
   
   This is easy to say but can be difficult to do when you are used to not worrying about whether you have enough money in your checking account. Credit allows you to spend without immediate consequences. When you commit to stop using credit cards, cash advances and relying on overdraft protection this will take some extra effort on your part to monitor your checking account balance.
   
   
3. Get a clear picture:
   
   Write out a list of your outstanding balances on the debt that you owe. Arrange debt from the largest balance to the smallest balance. In addition to the outstanding balance include columns to list minimum payments and interest rate for each debt.
   
   
4. Pay minimum payments only:
   
   Do this for at least several months. It is tempting to pay large sums of money towards debt to get your balances down. It is better to use the extra money to build savings. See step 5.
   
   
5. Pay yourself:
   
   While you continue to pay minimum payments use extra money available at the end of the month to build up your savings account. Unexpected emergencies have a way of continuing to happen. What if the water heater breaks and you need to replace it? Without savings your commitment not to use credit (Step #2) goes out the window. If you have saved cash you can use the money in your savings account pay for the new water heater.
   
   
6. Plan windfalls:
   
   Take your time to plan tax refunds, bonuses or money gifts that are anticipated or unexpected. This is similar to the discipline it takes not to pay down debt with extra income you may have available at the end of the month. The best use of windfall money may very well be used for debt repayment. If it is part of a well thought out plan, then go for it. Remember to stay true to your commitment in Step 2.
   
   
7. Find enjoyment money free:
   
   Plan for money free weekends. Here are some ideas: check out community events, classes or sports, go for a walk, hike or bike, plan a potluck or DVD movie night with friends, clean the closets or garage, play cards, picnic in the park, go to the library or volunteer to walk a shelter dog. Search the internet for things to do that are money free. You will find a “wealth” of ideas.

Barbara Hause MBA, Financial Counselor works with individuals, couples and small business owners who want to discover lasting, practical solutions to their money problems. Personal consultations are held in her Bay Area offices. On-line and telephone consultations are available to people who live out of the area. Barbara can be reached at (925)743-0518 or http://www.barbarahause.com