Get Out of Debt Plan - Step by Step

If your are feeling completely overwhelmed by your debt, then it is time for you to tackle it before it grows any larger. Breaking the task down into more manageable steps is the key. Now I'm not saying that it's easy, but it is completely doable, so lets get started.                                                                                                                                                                                                                                         
The first thing you need to do is to figure out where your money is going each month. If you are not completely sure then this will be the first small piece that you tackle. I have created an Expense Tracker Worksheet for you to use, to make your first step as easy as possible. To fill this out you will need the following things. (You can use this on your computer or print it out. It was designed to be used on a computer so that all totals will add up automatically):

1. All the up to date bills that you currently have with accurate amounts. If you're not sure if it is the right amount, call the creditor and ask them to email or fax you an updated statement.
2. You need to get copies of your credit report. Why? Sometimes we get so far behind, that we forget about things that we didn't have money to pay for. This is a sure way to make sure that you have everything you owe. Another great thing about viewing your credit report, is you can make sure there are no errors on it. For example: an account that you never opened. One of the easiest sites to get all three credit reports is Annualcreditreport.com. You can enter your information and view all three credit reports online. I recommend that you either save them to your computer or print them out. You are entitled to one free credit report per year or after being turned down for a credit card, loan, etc.
3. Recent pay stubs for all who contribute to the monthly bills.                             
1. Fill out you Expense Tracker Worksheet, write the month at the top and fill out the areas in the budget column only. Fill in what you think your monthly payments will be according to the bills in front of you. I have left a couple of extra spaces under each category if you need them.                            
1. PLEASE NOTE: IF YOU MAKE A MISTAKE BY ENTERING A WRONG NUMBER, SIMPLY CLICK BACK IN THE CELL AND TYPE OVER IT. PLEASE, DO NOT HIT THE DELETE BUTTON, IT CAN DISRUPT THE PAGE FORMULA , RESULTING IN INACCURATE TOTALS.                                         
2. You will notice at the bottom of the worksheet, there is a space that says "Total Monthly Expenses". As you enter your expenses, they will add up here. Below that you will see "Monthly Net Income"; you should be able to figure out this amount with the pay stubs that you've gathered and enter it in that space. "Net" income is the income that you receive after taxes are taken out. Now look at your Monthly Expenses compared to your Net Income.  Are you spending more money than you are making each month? The last row named "Total Deficit or Surplus" will show you how much you are over or under. Do you see anywhere you can cut down? If so, then do it. You may want to think about cutting your monthly expenses down. Check out my blog entry: How to Save Money on Your Monthly Utility Expenses. If not, it may be a good time to think about taking on a second job or getting some overtime temporarily.                                                                                                                                              
3. Once you have the Expense Tracking Worksheet filled out, you will need to get an envelope (a clasp envelope big enough to hold receipts, a pad and your pen is perfect.) and a pad. Give one to anyone in the house who spends money. You need to get a receipt for anything that you pay or purchase for that month, from your mortgage payment to a pack of gum. If a receipt is not available, then write it down on the pad. Keep all the receipts in an envelope with the pad and keep it in your car. For your fixed expenses, you only need to write them down if the amount suddenly changes.                                                                                                                                          
4. At the end of the month, gather your receipts, pad, Expense Tracker Worksheet and bills together. In the column next to Budget, named "Actual" in the same month, you are going to enter in the amounts that you have "ACTUALLY" spent for that month. Once that column is filled out,  you will fill out the "Monthly Net Income" section again for that column.                                                                                                                                
5. Now look at your monthly expenses compared to your monthly net income. Have you spent more than your net income in this column. If you have, then it's time to cut down on costs again. Try to cut simple things like brown bagging your lunch, making coffee at home, carpooling, save all of your extra change in a jar, etc. I know it seems trivial, but if you spend $5 per day on lunch 5 days a week for 52 weeks, you've just spent $1300.00, which could go towards paying down your debt.                                                                                                      
6. The next item that you need to tackle is to create some form of emergency fund. Focus on $1000 for now. You don't need to get it together all at once. Even if it takes you a couple of months to get it together, this is an absolute necessity in case an emergency expense pops up. This money should be put aside and left alone,  unless you have a true emergency.  For example: you lose your job, you are ill and can't work, etc. You get the drift.  Are you still with me???? Don't get overwhelmed, that's what the steps are for.                                                                                                                               
7. Once your emergency fund is in place, the next step is to list all of your bills in order from biggest to smallest. Continue to pay the minimum amounts on all of your bills.(Do not skip any minimum payments. Doing so can result in additional expenses in the form of late fees.) Pick an amount that you can afford, to use as an extra payment towards your bills each month. If it is $50 per month, then stick to it.                                                                                                                                          
8. Start with the smallest bill that you have. For example if the bill $100.00, with a $25 minimum payment, you will pay the minimum amount due of $25, plus the additional $50.00, each month until the bill is paid.                                                                            
1. NOTE: WHILE PAYING OFF YOUR DEBT, TRY NOT TO USE YOUR CREDIT CARDS. DEAL ONLY IN CASH WHEN POSSIBLE. LEAVE YOUR CREDIT CARDS AT HOME.                                                                                                                             
9. Once your first bill is paid off take the minimum that you used to pay on that bill and put it towards the next lowest bill. For example: If your first bill had a minimum payment due of $25 per month, once it's paid, you will now take that $25 that you had allotted for that bill and put it  towards paying off your next bill, along with the extra $50 and  the minimum payment for that bill. So if your next bill is $200, with a  minimum payment of $30, you will pay the $30 minimum, plus the $25 from the previous bill, plus the $50 extra that you've allotted each month to pay down your debt. It will look like this:
1. $30 (minimum) + $25 (previous bill) + $50 (extra $$ allotted)= $105. This is the amount you will pay on this bill each month until it is payed off. Just keep doing this until all your bills are paid. The reasoning behind paying off all of the smaller bills first, is that it free's up monthly payments so they can be applied to your larger bills.  The only extra money you have used is the $50 that you allotted to pay off your debts.                                     
10. You may need to make two separate payments, one for the minimum payment and then one for the extra. If you are paying off a loan or credit card that has interest, make a note on the extra payment that you send in, that you would like it to be applied to the "Principal Amount" of the loan.  This is the amount you owe before interest. Doing this, you will eventually lower your payment and pay less interest in the long run. You can continue to fill out the Expense Tracker Worksheet to see where you stand each month and watch your debt get lower and lower each month. Seeing your bills getting smaller each month is a real motivator to keep going.                    
11. Remember, this takes time and patience. It takes time to accrue debt,and it takes twice as long to get rid of it. Follow these steps and you will get out of debt.                                                         
12. Once your debt is paid off, concentrate on building up your emergency fund. You should have 6-8 months worth of expenses in your emergency fund for protection.

I hope that you find this process helpful and that you are able to delete your debt permanently. I am not a financial planner or guru, I just know what works from personal experience. If you get stuck or don't understand a step contact me. There is a contact form on every one of my blog pages. I will be happy to try to walk you through if you are stuck. The most important thing is for you to stick to this, and try not veer from it to get the best results. Being debt free means freedom to live your life on your terms. Good luck! <3