Have you ever witnessed the benefits of being debt free and then longed to get rid of your own debts? I have seen it many times, but often people are intimidated by the initial steps and instead just accept their fate of being in debt forever. This does not have to happen! Sure, your credit cards might be nearly maxed out and your car and house might be worth less than you owe, but let me tell you, THERE IS STILL HOPE!

Step 1: The Dreaded Budget

I never used to be such an avid budget promoter, but I have discovered that unless you know how much you’re earning and spending each month, there’s really no way to know if your dramatic financial changes are actually making a difference or if you’re just fooling yourself for a couple of months. So before you start paying off your debts, write down a full list of your typical expenses each month, which will likely consist of the following categories:

  • Housing costs
  • Utilities
  • Car payments
  • Car maintenance
  • Car insurance
  • Gas
  • Clothing
  • Food
  • Cell phone
  • Misc. payments
  • Gifts/Charity

Then, write down your projected income. If you’re a salaried or hourly employee, this should be easy. If you work for commissions, look up your yearly earnings over the past three years and use those numbers to figure out a reasonable monthly number. Use a free online service like Mint.com (read the full review here), to track all your income and expenses each month.

At this point, I would hope that your monthly earnings is a larger number than your monthly expenses. Even if it’s not though, we can still come up with a way to get you out of debt!

Step 2: Selling Stuff

No matter how terrible the financial picture, I have never once encountered anyone that didn’t have something they could sell for some money. When I started digging my way out of debt in 2010, I sold my television, my PlayStation, and my surround sound system. I think I earned $400 from these three items alone, and it was a great kick-start to becoming debt free!

If you are truly serious about paying off your debts and becoming debt free, then you should be able to find plenty of things to sell! Here’s a list that can help you get started:

  • Video game consoles and games
  • Stereo
  • Television
  • Furniture
  • Sporting equipment
  • Boats
  • Exercise equipment
  • Computers
  • Jewelry

Sell some stuff, get the payment in cash, and you can start doing some serious damage to your debts!

Step 3: Paying Off Your Debts

There are always those debts that people absolutely hate. Typically it’s a stupid purchase on a product that they either don’t like or don’t even have anymore! If this debt is small, take care of this one first (with the cash that we earned from step 2). It will absolutely pump you up when you no longer have to think about that debt!

Next, start putting that payment amount (that you no longer have because you paid off the debt) toward the new smallest debt that you have so that you can wipe that out quickly. And again, take the payments that you used to make toward those two debts and put them toward the next smallest debt. This process is known as the debt snowball. By tackling the smallest debts first and paying them off immediately, momentum builds quickly, and your confidence will start to soar. After just a few short months you will notice that your debts are disappearing and your savings account actually has some money in it. When you reach this point, you’ll realize that there is absolutely nothing that you can’t do! It’s time to pay off your debt completely!

Step 3 1/2: Changing Your Lifestyle

While you’re paying off your debts in step 3, you’ll likely start to realize how freeing it is to live without some of those payments. You might even ask yourself if it’s possible to be without a car payment or, dare you say it, a house payment! Let me tell you from first-hand experience, it is absolutely worth it to be free of all payments!

Your three biggest expenses in life are your home, your car, and food. Your home likely makes up 25% of your monthly income, your car comes in a close second at 20%, and food typically lands around 10-15%. Together, these expenses eat up 55%-60% of your hard-earned income! But, they don’t have to.

Downsize Your Life

When I got out of consumer debt, I realized that I could be happier with a much simpler life. What was the real point of all my stuff anyway? I didn’t really need a 2,600 square foot house (like the average American family), I didn’t need an expensive luxury vehicle (they all still get from point A to point B), and I really didn’t need to eat all that unhealthy restaurant food all the time. If I could still be happy with less, then think about all the freedom I would have with all that left-over money at the end of the month!

I could go on more vacations, I could put more money in savings, I could actually give some money away, and maybe I could even stock up enough money to retire early! When you’re deeply in debt, the possibilities are few, but once you’re out, the possibilities are endless!

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Derek Sall

Derek has been writing about personal finance for five years at LifeAndMyFinances.com. He absolutely hates debt, which is why he owns his car and his house free and clear and suggests that everyone else do the same. His equation is simple: get out of debt, save money, and be rich!
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