10 Steps to Getting Out of Debt

1

Stop increasing your debt. If you have any credit cards that are maxed out, cut them in half. If you have more than one remaining credit card, cut them up. When you finish, you should have no more than one credit card. Also cut up any "convenience" cards, such as fuel cards, department store cards, etc. You will use your one credit card only to buy "emergency things", and things that you know you will be able to pay off in a short amount of time until you can get your spending fully under control.

2

Record your spending. The idea of writing down what you spend is a concept most people find annoying at best and useless at worst. However, this is actually your key to getting out of debt. You're in debt because you spent money you didn't have. If you're like many people, your debt didn't come from one single huge purchase; it was trickles of spending amassed over time. Avoiding more debt starts with knowing what you are spending your money on. Each day for one month (at least), write down every penny you spend, no matter how small.

3

Categorize your spending. Categorize your monthly expenses into logical groups of "Must have," "Should have," and "Like to have." "Must haves" are things that will cause harm if you don't buy them, such as food, rent, medicine, pet food, etc. "Should haves" are things that you need, but can do without for a little while, e.g., new clothes for work, gym membership, etc. "Like to haves" are things that you don't need, but enhance your life, e.g., magazine subscriptions, newspaper, weekly coffee with friends, IM on your phone, etc. By doing this, you'll have a good idea of what you spend your money on, and you'll be able to figure out where you might need to cut back on spending. You don't want to eliminate all of the "should haves" and the "like to haves," but take a look at those first. One of your expenses will be paying off your debt. You will want to always pay more than the minimum required, otherwise it will take an extremely long time to eliminate your debt. For example, a single credit card with just a $1,000 balance and 19% interest will take about five years to pay off by making only the minimum payment of $26. Paying the minimum, you will spend $1556.40, with the Total Interest Paid: $556.40. Paying only the minimum payment will equate to giving them 55% more than you actually borrowed.

4

Make a budget based on your spending record. Write down the amount you spent in each category of spending last month as you budget for spending for the next month. Don't sweat if you feel like the amount is too much. For now, just write it down. If you spent $250 on clothes last month, write it down. If you spent $200 on gas for your car last month, write it down.

5

Figure out your debt paydown fund amount. Looking at your new budget, you're going to be able to see areas where you might be able to cut back. You might also see categories where you need to increase spending. In doing this step, no one is suggesting that you come up with budget amounts that are unlivable. Think about going on a diet. If you try to restrict your calories excessively, what's the first thing you want to do? Chocolate mud cake here you come, right? The key here is to be realistic. Are you paying money for a gym membership you never use, despite your best intentions? What about the $4 a day, every day, morning coffee you get before work, or your 5-cans-of-Diet-Coke-a-day habit? Chances are, your budget has some fat that can be trimmed. At the end of this exercise, you should have come up with a figure, a number of dollars that can be put toward debt paydown. Make a note of this figure. Day-to-day, if you don't want to keep taking note of all your expenditures, just write down what you spend in the categories you are trying to cut back. This will give you a very clear idea of how well you are doing, and, if you know you're going to go over your budgeted amount, it may help you decide to hold back on a purchase.

6

Figure out how much you owe, to whom, and on what terms. Debt can often feel overwhelming because you really don't have a clear idea of how much in debt you really are. Gather your bills, and make a simple list or spreadsheet of all the debts you have. Write down all the pertinent facts, including name of the creditor, your total balance, your minimum monthly payment, and your interest rate.

7

Start paying it off. Take the debt paydown figure of money you trimmed from your budget in step 4, and apply it to debt repayment. It's a good idea to prioritize the debts to which you are going to apply this extra money. Do you have debts that are past due and the creditors are hanging out on your door step demanding your first-born? Do you have debts with exceedingly high interest rates? Consider these top priorities. Let's say you determined in Step 4 that you could comfortably trim an extra $250 from your monthly budget to go toward paying debts, and that from your list of debts in Step 5, you owe $2,000 on a store credit card that has an interest rate of 19.5%, $1,000 on a Visa with an interest rate of 17.5%, and $25,000 in personal loans with an interest rate of 9%. You would want to pay the minimum on your low interest rate debts, and apply the bulk of your $250 to the highest interest rate, in this case, your 19.5% store credit card, despite the fact that the actual cost of the personal loan interest is highest. Also, consider that if you are already paying a minimum payment of $50 on that high interest card, if you start sending $300 per month (the minimum you are already paying plus your debt paydown figure), once it is paid off, then you will have increased your debt paydown figure. The next creditor can get the amount they are already getting plus the $300. Each debt gets easier to pay off than the last.

8

Wash, rinse, repeat. Just kidding, but you get the idea. This process gets easier. Once you've figured out your spending and what debts you owe, keeping it up gets easier and easier. You'll refine your budget over time, increase the amount of money you can pay yourself (see tip below) and the amount you can put toward debt. Continue to pay off each debt in your priority list. As you pay off convenience cards and high interest credit cards, call those credit card companies and cancel those accounts.

9

Don't give up. Chances are you didn't get into debt in a day, and you won't get out of debt in a day. Quick fixes don't last, but learning how to manage your money can bring great peace into your life, and you can spend your mental energies on more fun things.

10

Get a money coach. It can be really hard trying to get out of debt all by yourself and all too easy to slip back into doing the things that got you into debt in the first place. A money coach is someone to be accountable to and who will keep you on track. To find out more contact me today.

http://www.moneyforlife.com.au/10-steps-getting-debt/

How Mark lived by spending nothing for two years

In November 2008, Mark Boyle gave up money for more than two years. The business and economics graduate quit his job with an organic food company and set up home in a donated caravan on a Somerset farm.

He volunteered at the farm, grew his own food, cooked on a wood-burning stove and generated electricity through a solar panel, bought for £360 before the experiment started.

“I got to the point when I was looking at all the big issues in the world, such as deforestation and sweatshops, and I realised they are all symptoms of a deeper cause; a separation from what we consume. The most potent tool we have in terms of separation and an illusion of independence is money,” he said. “I wanted to see if it was possible to live without money, and how it would affect me.”

He admitted that when he started he was seen as “a bit of a joke”. “I used to get a lot of criticism,” Donegal-born Mr Boyle said. “When you challenge money, you challenge a lot more than notes and coins. You challenge a whole perspective on the world.”

However, the 34-year-old said support had increased over the past few years. “I’m sure some people still think it’s a bit of a joke,” he said. “But when I started in 2008, just before the financial crisis hit the headlines, I was mostly taking criticism. But since then most people are incredibly positive about what I’ve done.

“It is just people who don’t have that much money, wondering how they are going to survive the next year. Money isn’t as secure as they thought it was when times were booming.”

He said few people will want to give up money completely, although there has been an increase of that in the past year.

The vast majority of people were simply interested in how they could spend less. “I think that’s a sensible approach,” he said.

He said the first few months of living without money were “definitely the hardest period”.

“I came from a very conventional background and everything was new to me,” he said. “How I eat, how I get from A to B, and how I brush my teeth. All these things were new, and I felt the lack of perceived security that money gives us.”

He cooked food – grown, donated or foraged – on a rocket stove outside the caravan. He bathed in a river with soap made from the plant soapwort, and made his toothpaste from washed-up cuttlefish bones and fennel seeds.

He travelled around on foot or by bicycle. Instead of a flush toilet, Mr Boyle had a compost lavatory – still one of his top tips for people wanting to emulate his moneyless lifestyle.

“After two or three months I just started to trust that everyday my needs would be met somehow,” he said.

For those who prefer to put Colgate on their toothbrush, Mr Boyle advocates websites such as Freecycle and Freegle, where goods and services are given away or exchanged.

There are also websites such as Liftshare, which matches journeys and cars to save on petrol. If you want to reduce your spending on the high street, Mr Boyle suggests organising a clothes swap with friends or neighbours.

He set up a “Freeconomy” community online in 2007, where skills and tools are shared. “It’s not about having to go off and live in the woods, you can do it from your house,” he said.

Mr Boyle wrote a book, The Moneyless Man, during his time living without money. His latest book, The Moneyless Manifesto, is available free online and contains practical advice for people who want to live on less money.

Mr Boyle, who returned to the monetary world in 2011, is currently housesitting at Emerson College, an adult education centre that runs courses in a range of areas from biodynamic agriculture to storytelling .

He has just won planning permission for a straw bale, timber frame, passive-solar house in Devon, which he hopes to start building in June using the proceeds from his book sales.

Although it may seem ironic that Mr Boyle has made money from living a moneyless lifestyle, he said he was always clear that the profits made would go towards this new project. “We are working towards living in a localised gift economy, meeting all of our needs through gifting and growing our own food,” he said.

There is also a moneyless wedding to plan with his fiancée, Jess. “I’m not sure how it will work,” he said. “It’s a big conversation to have, how you put on a wedding for free.

“We want to show that people don’t have to get into masses of debt to have a really fun wedding.”

Luckily, his fiancée shares his views about living on less. “The time I lived without money, I've never been happier or healthier,” Mr Boyle said. “It had its ups and downs but it was a whole new way of being in the world. I want to get back there as quickly as possible.”