How We're Getting Out of Debt (And You Can Too)

Financially, the world is changing in a big way. Piggy banks and savings accounts are "hip" personal finance trends again, and for good reason. We've all gone broke, and an overwhelming majority of us are finally realizing how heavy our debt burden really is. My husband and I are no exception to this rule, and we've become determined to knock away our debts as quickly as possible without losing our minds in the process. With planning, accountability and a little bit of ingenuity I know that we can be debt free and stay that way.

In the past I've held positions in collections and customer care for a couple of major lenders. The overwhelming blessing that has come from those long conversations with people with past-due payments and questions about refinancing is that I have gotten a front-seat education on what to do, and what not to do, with my personal finances. It is this understanding of the way money works that has helped me to keep from getting completely buried in debt, and is helping me to ease my way out of it now that I'm sick of paying interest.

When my husband and I first decided to chuck the "debt monkey" riding our personal finances, we sat down together and outlined what our goals were. A big part of the initial conversation revolved around what we were willing to do without in the name of debt reduction, and what things we simply did not wish to part with. We're a couple of years into our debt reduction plan, and here is a quick look at how we're inching our way closer to having $0.00 in debt.

No More Credit

The first step in getting out of debt is always to stop taking out more lines of credit! My husband and I vowed that as a part of our plan to right our personal finances in light of the impending doom of the economy was to stop filling out applications for new credit lines. Even if a retailer is offering us 10% off of today's purchase, even if they are going to give us a free gift, even if there is 0% interest for 180 days, we always decline the offer. The old adage of "there's no such thing as a free lunch" is true. By not bothering to apply for a credit line we know we don't want we're avoiding building new debt.

Build a Savings Account

A lot of people who are trying to get out of debt scratch their heads when they're told that they should build a savings account as a part of their debt reduction plan, but it is truly a key component of setting your personal finances right. By building a savings account that is hefty enough to cover unexpected repairs, bridge the gap when we over-extend our household spending and take care of the planned purchase of high-ticket items we're helping ourselves to avoid charging those things to a credit card.

Cut Back Household Spending

For debt reduction to truly work, especially if you are in a relationship and are raising a family, everyone in the household has to agree to cut back on spending. Whether fair or unjust, scaling back across the board is the only way to produce enough money to start attacking your debt load. By lowering children's allowances, opting to purchase store-brand products, switching from date-night to family game night, hundreds of dollars can be saved and redistributed to your debts and savings.

...But Not Too Much

Because we like to go out, take vacations once in a while and splurge on an impulse buy once in a while we've decided to budget every month for a little spending money to line our pockets. It doesn't have to be much, just enough for movie and a dinner is fine, but having that "free" money that can be applied to whatever whim strikes us helps to keep us from feeling like we're drowning in our financial plan. All work and no play makes the Kawaii's go a little stir-crazy, and if you're anything like us you'll want a little indulgence money set aside too.

Pay Down the Debt With the Biggest Monthly Impact

This is another thing that I have done myself and recommended to others with great success. When choosing which debts to pay down first, many people attack the ones with the biggest interest rates or the lowest balances (for a quick "I did it!" feeling). I have always pushed my money towards the credit cards and loans with the biggest monthly payment. Regardless of my other loans balances or interest rates, I know that once the loan with the high monthly payment is paid off I'll be able to use that money to attack the next credit card more vigorously.

Take the Setbacks in Stride

Getting out of debt isn't going to happen overnight and it's important that we keep that in mind when we hit setbacks in our budgeting and spending. We're all human, and that means eventually we're going to make mistakes. We'll forget we almost had that MasterCard paid off and use it to pay the furnace repair guy, or we'll drain the savings account to pay of a student loan only to have the car make knocking noises the next day. Even the best financial minds can't anticipate everything (have you seen the economy lately?) so rather than beating ourselves up when things go awry we just head back to the drawing board and vow to do better next time.

If your plan is to become debt free this year, then I encourage you to borrow these tips and apply them to your own financial plan. The simple plan to spend less than you make, and set aside the difference for savings and debt reduction does work. Believe in yourself and don't get discouraged when it seems like you're spinning your wheels; one day your efforts will pay off.

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