Reality can be a scary thing.
When we started seriously trying to get out of debt, one of the first things we needed to do was really figure out how much of a mess we were in. We had to look at our actual debts and their amounts, what we actually spent each month, and try to reconcile all that with the money we had coming in. I’m almost embarrassed to admit that when we decided to really get serious about this, I honestly had no idea how much we owed in student loans and only a vague guess as to the interest rates we were paying.
I just knew what the minimum payments were, and that we’d be paying them for a long time yet.
You may be visiting this blog today for the first time, or the thousandth time, or somewhere in between. As the state of the economy strikes more and more unrest and fear in the heart of the average person, I’ve seen a big upswing in visitors who find my blog by searching for something relating to getting out of debt. And then yesterday one of my very dear friends talked to me about her desire to get out of debt, and what she could do to improve things and get rid of her debt for good. So I thought today was a great chance to talk about the first steps in getting out of debt and turning your financial life around. Once you’ve realized something has to give, here are some ideas on how to move forward and start making a difference. Facing reality and being ready to move forward can be summed up, for me into two basic steps: Where you are and How to improve it.
1. Figure out where you are.
- Make a list of EVERYTHING you owe. All your debts. You can ignore the house (first mortgage) if you choose to after you list it, but put it there.
- Keep track of EVERYTHING you spend for an entire month. Everything. And everything that comes in on the income side as well. Don’t leave out incidentals, list everything. From the stop for lunch to the insurance payment to the school pictures for your kids, keep track of every single penny.
- You can’t get anywhere if you don’t know where you’re starting from.
2. Figure out how to improve it.
- Create a budget. Budgets are hard to do at first, but it is really key. It may take adjusting and changing over time, but it needs to be at least tried. I like pearbudget.com/spreadsheet (the free downloadable spreadsheet part) to create it, but you can even just do it on a piece of paper. THEN, you look at what comes in, what goes out, cut what goes out that you can (don’t go insanely crazy but also, be kind of hard on yourself and see what you can do), and revise your budget. Make it as tight as comfortable, and then –
- Everything left over goes to debt. All the extra money goes to debt. Pick the debt you target first (from your list), pay minimum on everything else, and SMACK DOWN the target debt. You can determine which debt to target first by considering the different snowball plans, which was popularized by Dave Ramsey. Whatever order you choose, keep paying everything extra you can to the target debt. You can save them up in little increments, known as snowflakes – every little bit counts.
Hopefully, facing reality will spur you into action and start you on the road to debt freedom. Don’t be discouraged by the situation you’re in – it can be scary, daunting, even sickening at times – but by facing reality you’ve taken the first step towards improving it. You can’t get where you’re going if you don’t know where you are.