GET OUT OF DEBT AND STAY OUT!

If you have found yourself among the millions of people who are facing the grim reality of serious debt, do not despair. There is a way out. This is a three-step plan that will help you get organized and attack your debt. When you are serious about cleaning up your financial house, this plan will help you on your way to financial recovery.

There is a way out of debt. This plan is not meant for those who have lost a job in the current economic downturn, although, once employed again, you might use it to straighten out your finances and clear up debt that accumulated during the period of time that you were unemployed.

I am not implying that this will be an easy-to-take process. It will take hard work and the willpower to dig yourself out of a bad place. It doesn't matter how you got there; whether you had a serious illness and you have a pile of medical bills, or maybe you have a habit of buying things that you can't actually afford; the bottom line is the same and you have the power to change it.

You need to ask yourself how you got into debt. Be honest with yourself about how you accumulated so many bills. Whether it was bad financial habits that got you into trouble in the first place, or a job layoff or medical bills, define the problem. Write it down. Look at your credit card bills for the past year and see if there is a common spending pattern that got you here. Make a note of these habits. If any of these habits are within your control, you have to change them.

Now we have a place to start. A famous person once said, "No jackass steps in the same hole twice." So why do we go about making the same financial mistakes over and over again? Now that you've found the problem and you've defined what it was that put you here, you can begin to deal with it. If the damage done to your finances was beyond your control, an illness or job lay-off, you can now fix the damage that was done.

ORGANIZE your bills. Lay them out in front of you and make a concise list of what you owe and to whom. Most people feel so overwhelmed with debt that they don't know where to begin the job of fixing their financial nightmare. This is where you begin; know your enemy so you can begin to eliminate it from your life. Next to each "I owe" figure, note the interest rate, if any, on that account. When you're done, arrange your list in order of interest rate, highest to lowest.

As part of the organization phase, draw out your monthly budget. We all need to live within our means; in other words, if you don't have the money, you can't afford to spend it. That very attitude is a must if you
wish to succeed in pulling yourself out of debt. With that in mind, make a list of monthly expenses that are consistent. We'll call these non-controllable. These are necessities only. DO NOT INCLUDE CREDIT CARD MINIMUM PAYMENTS YET. With few exceptions, these are the consistent, stable bills that are nearly the same from month to month. For example, you might have the following:

1.  Rent/House payment (Include property taxes and home insurance here.)
2.  Home power/gas/electric expenses.
3.  Other non-controllable home expenses such as water, trash removal, home-owner's association dues, phone/Internet connectivity expenses.
4.  Gas and auto expenses including car payment and auto insurance.
5.  Grocery/food only expenses.
6.  Medical insurance. Do not include medical insurance if it comes out of your paycheck; include it only if you pay it yourself.
7.  Basic Cable. BASIC cable only; 100 channels is not a necessity.
8.  Be sure to account for annual fees, car registration, for example, and make a note as to when these expenses are due. You will need to put aside enough money each month to handle these bills when they come up.

Write down the total at the bottom of your list. That figure is the bare minimum; the amount of money that you need to survive. Notice that there is not an allowance for recreation at this point. Until this debt is under control, the less you spend on unnecessary items, the more quickly you will be out of debt.

At this point, when you subtract these above expenses from your income per month, hopefully there will be a positive number on the bottom line! If you are spending more for the bare necessities than you are bringing in, you have set yourself up for failure. In this case, you need to make big changes to your lifestyle. You'll have to cut expenses in order to get ahead. Remember, we are taking this nasty bull by the horns. If you are one of the few who will fall into this category, consider an apartment with lower rent, an abode closer to where you work. Take in a roommate to help with the rent. Do whatever you need to do to live within your means.

You probably fall into the other category; your income covers your basics, but once you start paying those monthly credit card minimum payments, your ends just aren't meeting. The majority of your debt is most likely credit card debt, as is the case for most people who find themselves in financial distress.

Credit card interest rates are astronomical. If you try to pay off only the minimum payment on each card every month, you could be paying up to nearly 30% in interest! Consider yourself "treading water." You know by now what the interest rate on each account is because you've written the interest rate next to each bill on your list. Were you shocked at those rates? Are you angry? If you aren't angry then you must be pleased that you are helping the big, credit-lending banks make lots and lots of money while you've allowed yourself to go deeper and deeper under water.

Once again, YOU WILL NEVER GET YOUR CREDIT CARDS PAID OFF BY MAKING ONLY THE MINIMUM PAYMENT. Why? Because very little of your minimum payment goes toward the principal. (The principal is the actual amount that you owe, without any interest.) Therefore, the first thing in our plan of attack is to PAY OFF ALL CREDIT CARD AND INTEREST-BEARING DEBT. You'll need to pay the bills off in chunks, as much as you can scrape together; thereby attacking and diminishing the principal.

How do you go about paying off that credit card debt? It can be done. Follow the points below. Get tough with yourself. You've come this far, so now continue on to the most important part of your financial recovery. If you commit to this plan, it will work for you as it has for others. Be willing to make these positive changes to change your financial life:

You've arranged your debt list in order of interest rate, beginning with the highest, ending with the lowest. Those bills and at the top of the list need to be paid off first. Those at the bottom get paid off last. (Of course you need to make AT LEAST THE MINIMUM PAYMENTS TO EACH BILL, each month, to protect your credit rating.)

THERE IS NO EXCUSE FOR ACCUMULATING LATE FEES. Pay every bill on time. Paying late fees adds up fast. It hurts your credit rating and is just like pouring money down a drain. It is an expense you can immediately eliminate.

You are no longer charging anything. You are now a cash-only operation! Keep reminding yourself when you are tempted to spend, "I have no credit cards," is your new state of mind.

Cut up every credit card except the one with the lowest interest rate. This one card you will keep is for emergency purposes only. An emergency would be, for example, replacing a bald tire on your car because you need transportation to get to work. An emergency is not a new dress for a company party or an evening out with a
hot new girl you just met! You now pay for everything with money that you have right now. That means you pay in cash, with a check or with a checking account debit card.

Do not close credit card accounts. Don't use the accounts, cut up the cards, but closing accounts looks bad on your credit rating.

If your credit is still fairly good and you have been making your payments on time each month, you are probably receiving offers in the mail for no interest or low interest credit cards, as a "teaser rate," for six months, for example. After the low interest teaser rate expires, the interest on the card will go up extremely high. You can transfer balances from your highest-rate cards at the top of your list, to a new card in order to take advantage of the teaser rate.

Transfer credit card balances ONLY IF you are able to pay-off the transferred balance that you have moved to the new card within the time frame of the teaser rate. If you stick to a payment schedule that will allow you to pay-off your debt within a planned time frame, you have bought yourself some time to pay off your debt at a reasonable interest rate. If you don't stick to the plan, however, you have accomplished nothing. Be disciplined about the payments. The point is to get high interest bills paid off in full.

Once you transfer a balance to a new card, or an existing one with a lower rate, CUT UP BOTH CARDS. Don't close the accounts, just cut up the cards. You are only keeping ONE emergency card. It may not be possible to qualify for a new card if you have let your debt problem go too long and your credit is already in trouble. Hopefully, you've begun your recovery plan while your credit is in tact. If not, don't lose heart. Just stick to the plan and you will emerge out of debt in the end.

Avoid using a service that promises to consolidate your debt. You may just be making a bad situation worse. Instead, get on the phone yourself with your non-credit card creditors; particularly those in the medical sector. NEVER let your debt go to collections. Pull yourself together and call the creditors. Work with them to come up with reasonable payment plans. Then stick to your payments. Pay them off.

Communicate with those to whom you owe money. Don't ignore their calls; in fact, you call them first. Hospitals and medical creditors are so much more willing to help you if you approach them and let them know that you intend to keep up your end of the deal.

In order to make this plan work, you need to be willing to take your budget seriously. We're now in the stage where you will make your debts go away. This is also known as the "cutting-back phase". Why? So that every dollar that you save by not buying something, you will throw at your debt. That is, in part, from where will come the funds to pay off your debt.

"If you don't have the cash, you can't spend the cash you don't have." This is now your Mantra. When you see a cute little pair of Jimmy Choo shoes, just because Carrie bought Manolos, for now, until your debt is gone, you can't afford them.

In fact, I'm amazed at some of the stuff people buy that they really don't need. There was a time when one entered the grocery store, one had a specific list of needed foods. And, if one didn't have a lot of money, one actually budgeted a certain amount for food. Also, if an item in the store costs, let's say, over $2.00, one really has to NEED that item in order for it to go into the cart. We can learn a lesson from the past; know what you need to purchase, don't add extras.

Within your new budget, figure out how much money you can afford to spend at the grocery store each week and stick to it. You should avoid eating out while you are paying off your bills, especially since "food" includes anything you put in your mouth, prepared at home or eaten at a restaurant.

TIPS FOR CUTTING BACK ON THE FRIVOLOUS TO PAY OFF YOUR DEBT: WHERE TO LOOK

You'll be surprised how much less you will save on groceries if you cut back on processed, packaged junk! You might even be healthier and slimmer if you shop around the edges of the store, avoiding the isles with packaged foods. Instead, buy fresh produce, meat and fish, shop the butchers' specials, add some whole grain breads, and prepare simple, wholesome meals. This isn't so much a sacrifice as much as a gift. You'll learn a healthier, more pure way of cooking! Pack your leftovers for lunch. Use bones to make soups. Sound stupid? Take that extra money, pay down on the credit cards.

*Run through your day, and then your week in your mind. Make a note of the little extras that you don't need. For example, that coffeehouse coffee each day. Make a note that you saved $3.00 (or whatever you spend) and know that, times 5 days, you've saved $15.00 each week. That $15.00 now goes toward paying down your cards. Sound silly? It's not. It all adds up.
Take a look at the other money-saver tips below and see how much money you could save and then apply to your higher-interest credit card debt:

*Avoid going out for lunches. Pack a lunch. Do the same with that glass of wine after work or beer at the pub. A glass of wine might be $6.00 at a cocktail lounge. You can buy the whole bottle and have a glass at home for $9.00-not cheap wine, either! How much will you save? All of that extra money now should go toward your debt. Make a note of the savings, send extra checks to the credit card companies whenever you can.

*If you are in debt, you can't afford a gym membership or personal trainer until your debt is paid off. Put on some sneakers and go for a run. Once the debt is gone, you can add the gym back into your carefully planned, new budget.

*Shop around for more affordable insurance, car and home. Make changes when necessary and save $$$.

*Contrary to common belief, neither cable nor satellite service is a necessity. If you are in debt, cut back to the minimum package until you can comfortably afford an elaborate cable package with hundreds of channels.

*Most of us will get by with the clothes in our closet. Shopping should not be considered a recreational activity at this point in our financial recovery. Neither should eating out be considered a social experience for now. Eat at home, wear what is already in your closet.

*If you have children, enlist them in your quest to put your house in order. You may think that you will embarrass your children by making them part of the solution. Actually, you'll be teaching them a valuable life lesson about responsibility. You'll also be teaching them that material "stuff" is not the important thing in life; the fact that you are together, fighting together to recover from poor spending decisions and learning together how to make better decisions, will serve them well as they grow up.

*Stop trying to keep up with friends who can afford to spend more than you. If you can't pay for your indulgences with cash, you can't afford the indulgences. Friends that you have to impress in order to keep them as "friends," aren't friends worth keeping. Here's another point that it wouldn't hurt your kids to learn early!

*This last point is important, so listen up! Never, ever grocery shop when you're hungry. You never know what might come crawling out of your shopping bag when you unpack it at home!

Every time you save money, send a good portion to pay off one of your debts, then put away a portion for emergencies. Don't forget to make extra payments to your highest interest rate credit cards; you are able to make more than one payment per month. Do it when you can!

If you stick to this plan, and keep paying down on your debt with the money that you don't spend on unnecessary, you will emerge a free person. You will also be proud that you conquered a problem that many people never get under control. Once you have done this, never, ever allow yourself to be put in an indebted place again.