How to Get Out of Debt: The Real Secret

Photo (cc) by StockMonkeys.com

This post comes from Benjamin Feldman at partner site Credit.com.

In my time working at a company called ReadyForZero that helps people get out of debt, I’ve come to a realization: While there are many actions that you can take to get out of debt, there is only one overarching secret to it, and that secret is … break the large problem (your debt) down into smaller problems with corresponding actions to fix them.

What do I mean by that? Well, if you’ve ever had debt (or have it right now) you can probably testify to the feeling that the problem seems so big and so overwhelming that you’re too afraid and/or discouraged to even think about how to tackle it.

That overwhelming feeling is like a monster that feeds off of your own uncertainty. In order to kill the monster, you have to understand your situation better and see the steps ahead that can take you to freedom. Then the monster will have no more power over you and you’ll be ready to get out of debt.

That’s why this secret is so powerful. By breaking it down into small, manageable problems instead of looking at it as one big, seemingly insurmountable problem, you give yourself a path to freedom — and that makes all the difference. Here’s how you do it:

Small Problem No. 1: You don’t know where your money goes

OK, so we need to take away your fear and replace it with facts. The most important facts: how much you spend each month and where your money goes.

Small Action No. 1: If you make most of your purchases with a credit card or debit card, log into your online account and find where it shows your purchase history. Then add up all your costs in each category, such as Groceries, Entertainment, Rent, Utilities, Transportation, etc. This should take only 10 minutes and it will give you a concrete view of your monthly budget. If you use cash instead of plastic, you’ll need to track your spending for a month in order to get this data.

Small Problem No. 2: You spend too much

This is a tough one for many of us. With all of the advertising out there, it’s easy to get caught up in a mentality of buying your way to happiness. However, new iPhones, new outfits or new cars rarely make us happy in the long run. Instead, they can mess up our budget and make us unhappy because they prevent us from reaching financial freedom.

Small Action No. 2: Examine your spending behavior and begin to change your mentality. Remove the triggers in your life that enable you to overspend. Take your credit cards out of your wallet (and freeze them in ice if necessary). Only use debit cards, cash or checks. More importantly, challenge yourself to find new ways of getting pleasure and happiness without spending money. There are many fun things you can do for free — so go out and find them. (If you suspect you have a serious spending addiction, you may want to get professional help.)

Small Problem No. 3: You don’t know which debt to focus on

This can be one of the trickiest parts of getting out of debt, especially for those who have several credit cards plus other types of debt like student loans, medical debt, etc.

Small Action No. 3: In general, you want to pay off the debt that has the highest interest rate first. That’s because you will save yourself money by avoiding unnecessary and excessive interest charges over the life of your debt. But also see if you can obtain a lower interest rate: Call up your lenders and ask them for a lower rate and if they say “no,” look into balance transfer options or even think about getting a consolidation loan. You can save a ton of money by lowering your interest rate a few percentage points.

Small Problem No. 4: You can’t stay motivated with your debt

This is when the monster is dangerous. The monster loves it when you don’t have any motivation because that makes it more likely you won’t figure out how to get out of debt.

Small Action No. 4: Motivation is a tricky thing, but what I’ve found is there are a few things that can really increase your motivation: your family, your life goals, or winning a challenge. Whichever of these speaks most powerfully to you, use it as your key to motivation. If it’s your family, make an “inspiration board” with pictures of your family and all the things you’ll do together once you get out of debt. If it’s your life goals, then write down those goals (buying a home, retiring early, etc.) and place them in a prominent place where you’ll see them every day. And if it’s winning a challenge that motivates you, then give yourself a specific date when you plan to be debt-free and circle it on all of your calendars. Then you’ll want to prove to yourself that you can actually do it — which will keep you focused.

Small Problem No. 5: You don’t have enough income

This is a hard one. You might think it’s a big problem rather than a small problem, but actually these days there are small actions you can take to increase your income a little bit at a time.

Small Action No. 5: If you want to make more money on the side (in addition to your regular job) check out sites like Elance.com and oDesk.com that allow anyone to do short-term freelance jobs from the comfort of their own homes. You can get paid for writing, designing, transcribing, organizing and any number of other things — all it takes is some research and finding the right opportunities online. The other thing you can do is start looking into ways to increase your salary at your full-time job. Find out what income other people in your field make and see what skills or new job opportunities might lead you to a higher salary eventually.

Now you know the secret to getting out of debt. If you use these five small steps to get out of debt, you’ll be much more successful than those who continue to let fear and inertia prevent them from taking action. You need to conquer that debt monster, and with these steps you can do it.

More on Credit.com:

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
7 Secret Departments of Amazon You Should Know About
7 Secret Departments of Amazon You Should Know About

These little-known sections of Amazon are hidden gems for deal-seekers and impulse shoppers alike.

7 Social Security Blunders That Can Ruin Your Retirement
7 Social Security Blunders That Can Ruin Your Retirement

Making even one of these mistakes can easily cost you tens of thousands of dollars.

Replace These 8 Things — for Your Health and Your Budget
Replace These 8 Things — for Your Health and Your Budget

Being frugal isn’t smart if you put off replacing these things. Waiting too long can cost money or even endanger your health.

5 Reasons You Should Retire Sooner, Not Later
5 Reasons You Should Retire Sooner, Not Later

Waiting until age 70 to retire isn’t for everyone. Could you be waiting too long?

How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Does it feel like your paycheck is gone the moment you get it? You can break that vicious cycle.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases.

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You probably don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.