4 Quick steps to Reduce Your Debt

We all need to start tigthnening the belt and reducing our personal debt, however it is not as hard as what you think, if you follow a simple debt management strategy.

Below is 4 quick steps to help you recover your personal financial postion.


Step one: Work your debt out.
Sit down and work out how exactly how much you owe and who you owe it to. Gather the latest bills from all Debt accounts.
Find the minimum monthly payment for each account and then add these up to get an overall monthly minimum. Pledge to pay this overall minimum PLUS an additional chunk every month -- enough to make a good dent in the outstanding balance of at least one account.

Next, order the latest bills according to annual interest rate charged. Apply the " additional chunk" (beyond the minimum) to the highest rate account(s). Repeat this process monthly until the last Debt account is paid in

Step two: Work out a Budget.
Once you know how much you owe you can draw up a budget, including a schedule for repaying your debts. Be realistic and work out what you can afford to repay and still stay within your budget.

Do this by setting up another simple spreadsheet.

• In one column, list your monthly bills (rent or mortgage, auto payment, utilities, cable, etc.) — everything that is a regular monthly expense. Then list variable expenses (things that change every month) like groceries, gas, etc.
  
• In the second column, put down the amounts for each. Be sure to put enough for things like gas and groceries, as you don’t want to be short. Be sure to also include your minimum debt payments and your emergency fund deposit.
  
• Now, list your income sources and monthly amounts. Now You’ve got a temporary spending plan (you’ll want to add the irregular expenses later).
  

If the expenses are greater than the income, you’ll need to make adjustments until the expenses are equal to or less than the income.

Step three: Be disciplined.
Don't borrow any more money or take on any more debts until you have repaid what you already owe.
Pay bills on time. This may be a problem for a lot of people. It’s important, if you want to get out of debt, to start paying all your bills on time. At this point, you want to focus on getting those bills paid on time, and making it a habit. If you have trouble remembering, try one of these methods:

• pay bills as soon as they come in — take them to the computer and pay them online, or write out a check and prepare the envelope to be mailed the next day; or
• set up a reminder in your calendar program to tell you when bills are due.
  

Step four: Watch your daily spending.
If you find it hard to keep track of your spending and ensure that you’re sticking to your spending plan. Here’s the key:

• Take a set amount of money out of the bank at the beginning of the week and give your card to a friend or family for self-keeping. That way you cannot spend more than you have in cash.
  
• first do the emergency fund deposit.
  
• Now do the debt payments.
  
• Then do your monthly bills.
  
• lastly withdraw the variable amounts in cash, and put them into separate envelopes.
  

This is an old-fashioned system, but it works, as you don’t have to worry about overspending. When your envelope is empty, you can’t spend anymore.

Continue to cut back on non-essential spending as much as you can at this point, so you’re able to stick within your spending plan.

Make small cutbacks. Take a look at things you normally buy and see if you can cut out a few of them, or spend less on them. Groceries? See if you can buy house brands instead of name brands. Coffee? Make it yourself at home instead of buying out. Lunch? Try packing it to work instead of eating out. Add up what your cutbacks will save you this month.

Finally
Another great way to get out of debt faster is to make more money. Look at ways you can make money on the side — Take 30 minutes to brainstorm. Are there ways you can start a small home based business online? Can you sell some of your household goods on eBay?