This simple guide is designed to help you finally get out of debt.

The average American carries $8,000 in credit card debt. If cards are paid off using the minimum payment option, $8,000 can take 20+ years to pay off. That’s a scary thought, huh? 30 years from now you could still be paying for a dress or iPod that you barely used. This is a harsh reality for many Americans and, chances are, if you’re reading this article, then you’re in debt and are about to face this reality.

One thing to keep in mind, though, is that you control your own future. If you set your mind to it, you can get out of debt. Now you may be asking “how can I get out of debt when I don’t know how?” It’s a question that many people with debt ask. How to get out of debt is often a confusing and long process. In this article, we will be going over, in depth, how to get out of debt so that the process will be as simple and quick for you as possible.

Know Your Options

Before you can even begin the process of getting out of debt, you should first explore all your options so that you can find the method that suits you best. There are generally two ways of getting out of debt without hurting your credit score further:

• Debt Reduction Plan: A debt reduction plan is provided by a credit counseling agency. They will, essentially, take all of your credit card bills and combine them into one or two monthly payments. Additionally, they will negotiate with creditors to lower interest rates. A debt reduction plan is good for those who are unable to figure out how to get out of debt on their own. For more on debt reduction plans, please see our article on them.

• On Your Own: You completely determine how to get out of debt. You’ll create your own repayment plan and possibly negotiate with creditors to lower interest rates. This is the method of getting out of debt which is covered in this article.

Step 1: Stop Charging and Cut up the cards!

The absolute first step to getting out of debt is to quit charging. You obviously cannot expect to get out of debt if you’re still charging. To prevent you from being tempted to charge, you can cut up the credit cards.

Step 2: Look at all of your bills

The next step is to look at every one of your bills. See how much debt you owe to each company, how much interest they charge on the debt and how much the minimum payment is. Create a spreadsheet (perhaps by hand or on the computer) and write all the details associated with each card. This allows you to see exactly how much you owe.

Step 3: Add all debt to see your total debt

It’s important to know the total amount of debt owed so that you can formulate an accurate plan. Add every individual debt together to determine your total debt. This will be the very basis of your plan.

Step 4: Create a budget

Next, you must figure out how much a month you can delegate toward debt. If you don’t know how to create a good budget, it’s time to check out our article on creating a budget. After you’ve gone through that, progress to the next step.

Step 5: Look at the interest rates and balance for each account

It’s time to create a plan to pay your debt off in the best possible manner. Take a good, hard look at the interest rates and balances on your credit cards. Strive to pay off the cards with the highest interest rates and balances, as those are most harmful to your credit report.

Step 6: Phone the credit card companies

A sometimes uncomfortable aspect of getting oneself out of debt is to actually phone the credit card companies. Many people who are in debt shun communications with credit card companies because they think the companies will treat them rudely. However, this is a huge mistake.

Most credit card companies employ workers who are helpful and friendly. Before you make a concrete plan for eliminating your debt, phone the credit card company. Explain your situation (that you want to get out of debt) and ask for a reduction of the interest rate. Most credit card companies are happy to oblige because they will be getting their money back.

Step 7: Re-Evaluate

After you’ve (hopefully) gotten the credit card companies to reduce your interest rates, it’s time to re-evaluate. You’ll want to, once again, pay off the credit cards with the highest interest rates and balances first.

Step 8: Pay more than the minimum on all cards

Paying the minimum, as we already said, can stretch out the amount of time you’ll be paying off the cards. Thus, it’s a great idea to pay above the average on all cards, regardless of how much you may be spending on the higher interest cards. Try to pay at least $10-15 above the minimum on each card.

Step 9: Create a plan

Now that you know how much to pay out to each creditor, it’s time to create your plan. Write down exactly how much you’ll be paying out to each creditor and add up the total amount you’ll be paying to creditors each month. Put this amount down on your budget so that it fits in with all your other expenses.

Update this plan every month with the updated balances and, as you pay off creditors, cross them off their list. This does two things: it holds you accountable and gives you a sense of accomplishment when you successfully pay off a creditor.

Step 10: Make payments on time

Late fees can increase minimum payments and make it that much harder to pay off the debt. That’s why you should do everything you can do to avoid these late fees. Send your money out to creditors a week before the due date on the specific credit card. If it’s not an option for you to send them out that early, arrange to wire the money to the credit card company a day or two before the due date. Doing so helps you completely avoid costly late fees.

Bonus Step: After the debt is paid off, do not get as many credit cards before

Once credit card companies see that you’ve paid off, or nearly paid off, debt, they’ll start sending you a lot of applications for new credit cards. Resist the urge to sign up for every offer that is extended to you, as overloading yourself with credit cards can harm your credit score and cause you to get into debt all over again. Try to limit yourself to two credit cards and you should be fine.

Bonus Step: Request a credit report each year

You can usually request a credit report for free every year. This report tells you about any outstanding debt you may owe, as well as what your credit score is. Knowing your credit score is crucial, so don’t skip this step.

What is a depreciating asset?

A depreciating asset is an asset with a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include such items as computers, electric tools, furniture and motor vehicles. Land and items of trading stock are specifically excluded from the definition of depreciating asset due to the fact that. Any improvements to the land are also considered depreciating, such as a windmill or a fence, and thus are not monitored with the land, even if they aren’t removable.
Most intangible assets are also excluded from the definition of depreciating asset. Only the following intangible assets are specifically included as depreciating assets:

• Certain items of intellectual property (patents, registered designs, copyrights and licenses of these)
• Mining, quarrying or prospecting rights and information
• Certain indefeasible rights to use an international telecommunications submarine cable system
• Spectrum licenses
• Data casting transmitter licenses.

The concept of depreciation is pretty simple. Depreciation is considered an expense and is listed in an income statement under expenses. In addition to vehicles that may be used in your business, you can depreciate office furniture, office equipment, any buildings you own, and machinery you use to manufacture products.

To find the annual depreciation cost for your assets, you need to know the initial cost of the assets. You also need to determine how many years you think the assets will retain some value for your business. In the case of the truck, it may only have a useful life of ten years before it wears out and loses all value. Below are types of depreciating values.

Straight-line depreciation

Straight-line depreciation is considered the most common method of depreciating assets. To compute the amount of annual depreciation expense using the straight-line method requires two numbers: the initial cost of the asset and its estimated useful life. For example, you purchase a truck for $20,000 and expect it to have use in your business for ten years. Using the straight-line method for determining depreciation, you would divide the initial cost of the truck by its useful life.

The $20,000 becomes a depreciation expense that is reported on your income statement under operation expenses at the end of each year.

For tax purposes, some accountants prefer to use other methods of accelerating depreciation in order to record larger amounts of depreciation in the early years of the asset to reduce tax bills as soon as possible.

You need, additionally, to check the regulations published by the federal Internal Revenue Service and various state revenue authorities for any specific rules regarding depreciation and methods of calculating depreciation for various types of assets.

Physical Depreciation

Physical depreciation represents the accumulated loss in market value caused by physical wear and tear since the date the building was completed. Physical curable depreciation refers to damage that can be corrected economically, and it includes such items as poor decorative conditions, broken fittings, outdated or worn out carpeting, faded or old paint, appliances not in a proper working order as well as aging roofs. On the other hand, physical incurable depreciation includes wear and tear of structural members and foundations where repair or replacement is likely to involve significant cost.

These two kinds of depreciation are treated differently. The dollar amount of the deduction required for physical curable depreciation is generally based on the required cost of carrying out the repairs. Conversely, the allowance for physical incurable depreciation is more difficult to estimate, with the principal cause of such difficulty lying in the determination of the remaining life of the building.

There is no precise way to estimate the cost of correcting physical incurable depreciation. The cost of this kind of corrections is so great that in terms of economics the structure should either be left in its present state or totally rebuilt.

Governments tend to estimate the economic life of buildings in terms of straight-line depreciation, but this is so merely because it makes the estimate of capital gains and losses, as well as their recapture, a little easier to determine from an accounting point of view. Appraisers and experienced Realtors, on the other hand, will tend to make an educated guess more often than not as to the value of the physical incurable depreciation based upon visual observation while economists will base it upon knowledge of regional comparable market data.

Functional Depreciation

This type of depreciation describes the loss of value caused by outmoded or inadequate design. Here too it is necessary to distinguish between curable and incurable functional depreciation. Functional curable depreciation includes items such as the cost of replacing old-fashioned fittings, installing an additional bathroom or otherwise altering the existing plan by, for example, creating new doorways and blocking old ones, or by following market trends such as enhancing the visual appearance of rooms with open layouts and light-play. Again, the amount by which market value is reduced is in direct function of the cost involved in carrying out the necessary updates.

Moreover, like before, the amount by which market value is reduced because of functional incurable depreciation is entirely a matter of judgment and cannot be determined with an arithmetical calculation. There are, of course, limits to what can be done to cure functional depreciation. For example, if an architectural style has gone out of fashion, nothing can be done and a higher factor of deduction will be applied. The opposite is true, of course, of plans that never go out of style. For instance, residential ranchers are always high on the list of demand and very much sought after by elderly and younger couples alike but for opposing reasons: a lack of stairways for the first and easy maintenance for the latter.

Overall, buying depreciating assets on credit is a highly negative thing. To buy something that has a value that degrades over time would be a poor choice to add to your credit as if you needed to sell it to regain the money to pay off the amount, then you will be caught in a perpetual losing battle with debt.

With the bad rap that credit cards have gotten, you’d think that they’re pure evil. While credit card use has the ability to destroy reputations and credit, responsible credit card use can actually help you establish good credit. That probably sounds a bit crazy, but it’s actually true. If you use your credit cards responsibly, you are showing perspective lenders that you are a good, reputable person to loan to. As a result, they’ll be willing to give you loans at good interest rates.

One of the pitfalls with credit cards is that most people do not know how to responsibly use them for the right reasons. Thus, they fall into deep debt which harms their credit. You’re probably wondering “how can I avoid this pitfall?” Well, it’s actually pretty easy, provided you are able to use some self-control when reaching for the credit card. We’ll give you seven easy, quick tips for making sure you use those credit cards the right way.

Tip #1: Never Charge More Than You Can Afford

This seems like an obvious tip, but it’s something that most people do not follow. Often times, when we are given a piece of plastic that enables us to charge thousands of dollars and not have to pay that back for a certain amount of time, we are tempted to charge as much as possible. Even if we can’t afford to pay for all the stuff we charge, we still do it because it feels great to buy things. Indulging makes us happy. However, once you receive the first bill and realize you cannot afford it, you are often shocked and unsure how you’ll be able to pay it.

How can you avoid this? By simply not spending more than you can afford! Before you go to charge anything, think about the purchase. Is this something you can afford to pay for within a month or two? If not, do not purchase it.

Tip #2: Pay Back the Entire Balance at the End of the Month

For years many financial experts have recommended this obvious tip. Despite how well-recommended it is, many people neglect to do it. Carrying large debt balances from month to month, even if the payments are made on time, is bad for your credit. That’s why paying off the entire balance at the end of each month is so crucial—it lets creditors know that you are serious about paying back any debt you may incur. To make this tip really work for you, you must make use of tip #1 which is to not overspend. If you spend more than you can afford to pay back in one month, you will not be able to pay it all back at the end of the month.

Tip #3: Never, Ever Use Your Credit Cards to Pay Off Other Debts

A lot of people who cannot afford to pay one bill may use another credit card to pay it. This is really destructive behavior, as it only puts you further in the hole. Even though it may seem like a good idea at first, the debt always catches up to you and it is often worse than the first time. So do not ever use a credit card to pay off another bill, as it will only harm your credit rating and put you even closer to going bankrupt.

Tip #4: Keep Track of All Credit Card-related Purchases

When you use your credit cards to make a purchase, be sure to save every single receipt. This allows you to see how much money you have spent before receiving the monthly statement. It also allows you to potentially spot any errors the credit card company could make in regards to your billing statement. Finally, it holds you accountable—just seeing how much you’ve spent in the past day or week can prevent you from making purchases that you cannot afford.

Tip #5: Always Pay Before Due Date

One of the huge mistakes many people make is to not pay their credit card bills on time. As a result, late fees begin to accumulate, making it even harder for credit card holders to pay back their debt. The simple way to avoid this problem is to pay your bills before the due date—if possible, send out the money a week before the date, so that there is adequate time for the money to reach the company. Doing so prevents late fees from ever happening.

Tip #6: Don’t Use Credit Cards for Every Single Purchase

It is tempting to abandon cash and checks and use credit cards for most, if not all purchases. However, this really isn’t a good idea. You have to remember that on every purchase you make, there is an interest rate. If you’re spending $25 on a t-shirt and use a credit card to pay for it, you may actually be paying $35 on the shirt once interest is factored in. For one item, this may not sound like much. But if you do this several more times, the money begins to add up. That’s why you should avoid using credit cards for every purchase. Try to use credit cards only when absolutely necessary.

Tip #7: Before Making a Big Purchase with a Credit Card, Think About It

Before making a big purchase using a credit card, most responsible credit card users take the time to think the purchase through. They may ask themselves the following questions:

1. Can I afford to pay this back within a month or two’s time?
2. Do I absolutely need this item right now?
3. Would it be better for me to simply wait a month or two to save the cash and pay for the purchase with money and not a credit card?

The answers to the above questions will tell you whether or not you should use a credit card to purchase the item in question. If you can afford to pay it back within a month or two’s time and need the item now, charging is probably a good idea. If not, you should simply wait and save your money to purchase the item without the use of a credit card.

By applying the above tips to your credit card use, you can become a responsible credit card user. Good luck!

I’m not picking on certain stores even though I’m going to “name names.”  These are just my personal examples.  I want to explain why I think they are so horrible because I discovered that even my husband, who absolutely hates the use of credit cards, was confused about my refusal to take advantage of a discount I could have gotten if I would have been willing to put my purchase on a store issued credit card instead of paying cash when I went shopping last weekend.

I was at JC Penney and was purchasing a shirt for myself (I’ve been losing weight and all my spring/summer clothes are too big – yippee! – but that’s a story for a different blog).  The store had scratch off cards with a discount of 15%, 20% or 30% but the catch was the purchase had to be put on their store-issued credit card in order to be able to get that extra discount.

The cashier was doing her job (I know they are trained to ask people if they want to use their store credit card because that’s an important source of revenue for many stores) and asked me if I wanted to put my $17.99 purchase on my JC Penney card.  I politely said “no.”

She then asked if I had a JC Penney card.

I said “yes” because I technically do since I’ve never received a notice saying my account had been closed, but I did physically cut my card into several pieces a couple of years ago.  She then pointed out (nicely) how I could get 15%, 20% or 30% off my purchase if I used my store credit card.

I then said I didn’t have my card with me which was the wrong answer because she then very helpfully offered to look my credit card number up for me (yet another example of how my mother was right when she said “it doesn’t pay to lie” which was not the thought I wanted running through my head at that particular moment).  That’s when I had to come clean and say I don’t use my credit cards anymore and that I had cut mine up.  I thought that would shut her up.

It didn’t.

Then she told me how I could put the purchase on my store credit card and then immediately use the cash in my hand to pay it off.  I declined one more time and she finally let it go (probably because there were now several people in line behind me and this small transaction was starting to take up a lot of time); although I saw the look of “I can’t believe you are refusing to save money” look on her face.  I managed to not slink out of the store with my head down to avoid the looks of disbelief on the faces of the other shoppers.

I then went to Kohls where I found a really cute pair of workout pants on sale (I gotta say that I’ve been really motivated to lose weight because I know that growing out of my clothes in a “they’re way too big” way is the only way I can justify buying new ones right now).  I went through practically the same identical conversation with the sales clerk there because, surprise, they were having the same identical promotion with the scratch off cards that revealed a 15%, 20% or 30% discount (and not that you probably care but I’m pretty sure Kohls came up with that idea first since I’ve taken advantage of it many more times than I want to admit).

When I got home I was proud of myself for sticking to our cash only plan and resisting the temptation of the discount I could have gotten by using store credit cards.  I completely expected my husband to feel the same way when I proudly told my story; but instead I nearly fell over in shock when he said, “Why didn’t you use the store credit cards and then pay it off right away? You could have saved at least $7.”

After I recovered from the shock and after asking him if that’s really what he said (at that point I was sure I had been hallucinating), I realized that he might not be the only one that doesn’t understand why giving into that temptation is bad.

There’s 2 reasons:

1) Sometimes those transactions aren’t instantly posted on to your account (computers get tired and slow too).  There may be a 10, 20, or 30 minute (or more) delay, meaning you either have to hang around the store and wait to pay it off; come back another day (a waste of time and gasoline); or wait for the bill to come in the mail which means you then have purchased something on credit which is not a good thing if you’ve banned the use of plastic from your life.

2) A person’s mindset changes – at least mine does.  Let’s say I was lucky and got a 30% scratch off discount card when I was at Kohls.  In my case it would have meant an additional savings of $9.12.  My mind would have instantly gone into the “now I can spend more because I just saved $9? mode of thinking.  Chances are very high that I would have decided to wait to check out and went and spent that $9 savings on socks or underwear or a cute candle (who knows what I would have locked my eyes on to).

I wouldn’t have purchased anything else I needed (that I could afford) because I was already buying what I needed (and could afford).  Plus I probably would have bought more stuff because I had a 30% off coupon and that was a discount in addition to any discounts I would have already gotten due to sale or clearance prices!  (writing that practically made me hyperventilate because who doesn’t love a great deal and I missed out on it! – see how bad I am?)

I can’t trust myself with credit cards and if you’re like me ( I know there are others out there who are – you may or may not have admitted it yet), the savings is not worth the risk of buying way too much stuff all in the name of that “great deal.”

I first gave my husband the “there is sometimes a delay in the posting to your account” scenario about why I declined the discount which he seemed to understand, but then he then said, “Oh, then it was a matter of deciding if waiting around is worth your time and you decided it wasn’t.”

No! No! No!  Well, yes, but that’s not the only reason and not the most important one.

That’s when I had to explain the mindset change and the “temptation” factor which I know he doesn’t truly understand since he’s never ever had that problem, but he was smart enough to know that I was telling the truth because he’s witnessed my overspending for no apparent reason many times and has innocently asked why I bought something I didn’t need when I came home and showed off all the great deals I got.  He probably can’t remember how many times I said in a “Duh” way, “I bought it because it was really cute and really cheap!”

That’s why I think store issued credit cards with their great deals are evil and should be avoided.  Stores do it for one reason and one reason only and that’s because it MAKES THEM MONEY!  A lot of people don’t pay their purchases off before interest charges accumulate which is a win-win situation for the store.  They got you to buy their products and now they get to charge you interest for the privilege of buying from them.

With economic times being hard for retail stores, the revenue they earn from interest on their credit cards is more important than ever to them.  That’s why stores push the use of their credit cards and why cashiers often get bonuses or rewards for every person they sign up for a store issued credit card.

I’m not trying to single out JC Penney and Kohls.  There are plenty of other retail stores that offer deals to get people to use their credit cards.  Kohls and JC Penney are 2 of my favorite stores and I’ll continue to shop at them; but I’ll be the one paying cash when almost everyone else is handing over their credit card during one of those great “use your store credit card and get an extra discount promotions.”

I’m a walking poster child for how to not manage money and handle credit.  I’ve been irresponsible most of my adult life with money but was lucky enough to always have someone bail me out of every financial mess I got into until 2 1/2 years ago when bankruptcy was not only “knocking on my door” but had come inside to stare me in the face.

I finally grew up, took responsibility for my actions, and started making changes.  Today, even though I still have debt, I no longer use credit cards, live on a budget, and bankruptcy is no longer a looming threat (it’s not even living in my zip code).

I’ve wondered what made such a complete mess-up when it came to money.   I could be a whiny baby and blame my parents but they tried to teach me how to be frugal and fiscally responsible and they weren’t people who just talked the talk.  They took out a loan for 1 vehicle in their entire lives.  Every other one they paid for in cash.  They have never paid a single penny in interest on a credit card and never once as a kid did I have to wonder where my next meal was coming from.  If there were times when money was tight in our house I never knew it.  I always had what I needed and more.

Yet once I turned 18, got a job, and was on my own I started using credit cards like they were “free money” and always had an excuse of why I was always overspending.  And I mean it when I say had excuses and “good reasons.”  I was the queen of explaining away why I had spent money I didn’t have.

My husband worked hard and did his best to provide for us (and still does).   And to be an outsider looking at our family today you wouldn’t probably think we ever had money problems.  My husband and I managed to raise our kids with all of them having everything they needed and more (yes, they were spoiled with material things which was completely my fault and not my husband’s).  We built a new house along the way (over 3,000 square feet which was much more than we needed but I was always about bigger and better so my husband did his best to give it to me.)  I went back to school, got my bachelor’s degree once my kids got into high school and then found a job that I enjoyed.

Then, 4 years ago, even though  I still didn’t have my spending under control we were still financially stable enough that I could quit my job to be at home and take care of my Mom who had gotten seriously ill (I’m the only living child and was traveling extensively for my job so I felt the need to be closer to home – and it’s something I have not regretted for one second).

Then, within the span of 2 years,  one of our children defaulted on student loans we had co-signed on to the tune of $20,000 thousand dollar, my husband’s work vehicle had to be replaced, a home business we had started and invested quite a bit of money into didn’t work out, our college daughter’s vehicle quit running and since she didn’t have any money we bought her another one, another one of our children experienced financial difficulties so we loaned/gave him several thousand dollars, and I still hadn’t stopped spending money like it was growing on a tree in our backyard.

On top of that we had a big mortgage payment for that big house I had to have.

Suddenly, instead of being able to pay all our bills each month (well, at least the minimum payments) we now had a whole lot of month left at the end of our money.

So we consolidated and took out a home equity loan.  It took a $75,000 loan to pay off our son’s student loans, pay for the 2 vehicles we had to buy, pay off the debts of our failed home business and pay off our credit cards.

You would think that at this point I would have gotten scared and would have stopped spending but I didn’t.  It took another $3,000 before my husband came to me and said we either had to make changes or declare bankruptcy and if we didn’t make changes right away we would no longer have a choice because bankruptcy would be our only option.

He gave me a book to read – one a co-worker had given him when he confided to her how worried he was about finances.  The book got me to open my eyes and realize what I had been doing.   (I’m not going to recommend you read it.  I’m going to tell you to read it.  It’s The Total Money Makeover by Dave Ramsey).

I finally agreed to sit down with my husband and face the amount of debt we had -close to $300,000 (including our mortgage) and to start making changes.

Today we still owe $160,000 on our mortgage and $26,300 on our home equity loan.  We have $0 credit card debt and $0 car loan debt.  In 2 1/2 years we’ve paid off $100,000 in debt.  By the end of 2009 we plan to have our home equity loan completely paid off and our mortgage under $150,000 despite my husband just receiving word yesterday at work that his compensation will be changing which will mean less income.

I’ve done some really stupid things – lots of them – and I have nobody to blame but myself.  But, I’ve also changed and have started doing a lot of things right.  And while I used to be a walking poster child for how to not manage money today it’s just the opposite.  Family and friends now ask for financial advice and tips because they know how much things have changed at our house.

Why have I told you all this?  Well, whether or not you wanted to hear my story, I wanted you to know that I’m not just some faceless person banging away on my computer telling you how to get out of debt without any real knowledge of how to do it.  No, I don’t have a degree in “finance” unless going to the “school of having to learn about managing money the hard way” counts.

I’m not a “financial expert” who has never experienced financial difficulties but yet pretends to know exactly how to do it (there are plenty of people out there like that).    I’ve been to the brink of financial disaster and am recovering from it.  There’s the saying of “what doesn’t kill you makes you stronger” and that definitely is how I feel about my debt.  I’ve faced it (one of the hardest things I’ve ever done) and have changed it.