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.

When people go into deep debt, they often think that the only solution to the problem is to simply get a bankruptcy and start over again. Bankruptcies, though, aren’t exactly “starting” over—they stay on your credit record for years and also make you look bad to potential lenders. So what are you supposed to do if you’ve got deep debt? You could take the bankruptcy route and damage your credit more or you could do something else that will allow you to get out of debt while not further harming your credit: credit counseling.

What is Credit Counseling?

Credit counseling is essentially debt counseling. When you get into a lot of debt and are unable to pay it off on your own, you’ll go to a credit counselor who will tell you the best method of paying off the debt. Credit counseling gives you an effective way of paying off whatever credit card debt you may have.

When should I consider Credit Counseling?

Anyone who has debt which they cannot pay off should consider credit counseling. Credit counseling offers you a way out of the mess of credit card debt. Qualified and experienced credit counselors can look at your debt and determine the best way of paying it off. Depending on how much debt you have, your counselor may tell you about a debt reduction plan to help rid yourself of the debt.

What is a Debt Reduction Plan?

Under a debt reduction plan, your counselor will consolidate all your debts into one monthly payment which you give to the counselor who then disperses it to creditors. Your counselor will also attempt to lower your interest rates and will arrange payments to each creditor in a way that enables you to pay off the debt as quickly as possible. Most debt reduction plans last anywhere from 12-60 months, although people with a huge amount of debt ($30,000 or greater) may end up in a debt reduction plan of longer than 5 months. How long your debt reduction plan lasts will entirely depend on how much you can afford to set aside for your bills each month and how much debt you have.

Why is Credit Counseling Effective?

Credit counseling is effective because those who work as credit counselors are able to financially analyze any situation and tell the person who is in debt what the best option is for them in regards to paying off the debt. They are able to create individualized plans for anyone who is debt.

Why is Credit Counseling NOT Effective?

Generally speaking, most credit counseling is effective. However, if you go to a credit counseling agency that is unaccredited and dishonest, you will run into big problems. In fact, you may even be worse off than before. That’s why picking the right credit counseling agency is extremely important.

How do I pick the right Credit Counselor?

The first step toward selecting a credit counselor is to open your phone book. Look for the section of the yellow pages about “Credit counseling”.

Take a look at each listing—there should be at least one local credit counseling agency in your area. As you look at each listing, make note of the name of the counseling agency.

After you’ve come up with a list of agencies, log on to Google.com and google each agency. Really research each agency so that you do not end up with one that isn’t effective. You may want to check out http://www.nfcc.org/ for a list of accredited credit counseling agencies. Those agencies that are accredited are usually the most effective ones.

Questions to Ask a Credit Counselor

Once you narrow the list down to potential suitors, you’ll still have some work to do before you can pick a good credit counselor. Each agency that you may consider should offer a free session. Take advantage of this session to ask the counselor some of the following questions:

• What fees are associated with using this counseling agency to get out of debt? While virtually every counseling agency is non-profit, they will still all charge some fees to help cover administrative costs. Generally speaking, you will not want to choose an agency that charges more than $50 a month for their services.
• How will you tackle my debt?
• Will you employ a debt reduction plan?
• Will I have to pay any extra fees?
• It’s important to know how a perspective counselor will help you to get rid of your debt before you even sign up with them.
• How long will the plan take? In other words, how long will it take for me to pay off all this debt? Time is money, and if you’re looking to pay off your debt in a specific amount of time, perhaps a year or two, it’s important to ask how long it will take you to pay off the debt using this credit counseling agency.
• Are you accredited? It’s a legitimate question that you should ask every single perspective credit counselor. Good, accredited counselors will not mind this question. Those who aren’t will mind the question, and that’s a good indication that they are not right for you.
• Will you tailor your plan to fit my unique needs? Everyone’s situation is different and good credit counselors will take all of your needs into consideration when coming up with a plan. Make sure that the credit counselor that you are considering will be able to tailor fit a plan to you.
• Can I meet with you once a year to discuss my debt and how much I’ve paid off?

It’s important to stay updated when it comes to using credit counseling. Most credit counseling agencies will encourage meeting up with their clients once or twice a year to discuss details of the plan and how well it is working. They will also review your credit report with you.

Recommended Credit Counseling Agencies

It is often very difficult for some people to find credit counseling agencies that are respectable and legitimate. While the agencies below may not have offices in your city, some offer online services that you may be able to use.

• GreenPath – GreenPath has offices in many states and cities. They’ve helped millions of people get out of debt and are accredited.

• Delray CC – Delray offers completely free credit counseling services to millions of people. They are accredited and can counsel via the internet or the phone.

• MoneyManagement – MoneyManagement offers services both online and in person at their many locations. There are some fees associated with MoneyManagement, but they are minimal. MoneManagement is fully accredited and very effective.

Keep in mind that these are just three of the many possible credit counseling agencies that you can use to get out of debt. Check the NFCC for more possible options.

Just so you’re prepared it may be agonizing slow…like watching paint dry on a humid day.

But before you can start getting rid of it you have to know how much you owe.

That’s step 2 in getting out of debt.  Most people who have a lot of debt don’t know how much they owe and don’t want to know because writing it down and seeing it in print will literally make them feel ill (as in “I’m going to puke all over that piece of paper right now” – gross but that was exactly how I felt).

I used to live in a constant state of denial and avoidance about my bills.  I wouldn’t open my credit card statements and did my best to be as far away from the house as possible when my husband was paying bills because I didn’t want to face him because I knew he would be justifiably angry when he saw them.  I would even sometimes pretend I was really sick so my husband would feel too guilty to yell at me.

My favorite response though was to cry and promise to not do it anymore (a promise I knew deep down inside that I had no intention of keeping).  I did some pretty awful things to avoid talking about the debt I was piling up.  It was irresponsible, juvenile, and a completely rotten way to treat my husband.

When I finally sat down with my husband and wrote down every penny of debt we had, and then added it up, I truly did literally start to feel ill.

But in order to pay off that ugly debt a person has to know how much there is.

So grab a pencil and piece of paper, and then go get all your bills from wherever you have shoved them so you didn’t have to look at them.  Open each bill and on that piece of paper write:

- The name of each creditor that you owe money to

- Total amount owed

- Minimum Payment

- Due Date

If you want you can also write down the interest rate of each bill.

Then add up all your minimum payments.  That’s the bare minimum you need each month to start getting rid of the debt.  But you’ll need to pay more than the minimum if you want to get the debt paid off in a reasonable amount of time.

To get enough money to pay those minimum payments plus as much extra as possible, do whatever you can to cut expenses and increaase your earnings.  It’s also a great time to sell anything you don’t need and to immediately use the proceeds to help pay a bill (not to go shopping for more stuff).  Sell whatever you can and be like Dave Ramsey says, “Sell everything but the kids.”

In step 3 I’ll talk about that 4 letter word – budget.  (Yes I can count.  Yes I know it’s more than 4 letters long.  But mentioning the word “budget” to some people causes a look of pain so severe to cross their face I wonder if I’ve just cussed them out without realizing it.)

Are you saying “Duh?”

A few years ago I would have.  I was in debt and wanted to get out of debt – or so I said.  I didn’t want the debt I had, but I wasn’t willing to do anything about it.

All I did was pay it lip service.

I hated the credit card bills and tearfully promised my husband nearly every month that I would stop using credit cards and would stop overspending.

But then I would be at a store and see a “great deal” on a pair of sneakers that I justified buying because they would motivate me to get out and walk more often because my feet would be comfortable.

Or…I saw “buy one get one free” on down pillows and I always wanted down pillows and they would help me sleep better and prevent me from getting a sore neck.

Or….I saw the cutest shirt on clearance ( marked down 90% to only $5!) and I couldn’t pass up such a great deal.

Or…..I would see a present that I was sure one of my kids would love for Christmas (it would only be March) and it was on sale so I would buy it and then be unable to wait to give it them so I gave it to them early (really early, like the next week – because they deserved a treat, right?).  Then at Christmas I still spent the same amount on them that I always did because that present I gave them early really hadn’t been a Christmas present.

Do you get where I’m going with this?  I was great at coming up with reasons why I just had to buy one more thing with my credit card…….in a never ending cycle of promising to stop spending and then going out and doing it anyway.

I said I wanted to get out of debt but my actions spoke a whole lot louder than my words.

Stopping the cycle of overspending and paying off debt is hard.  A person has to be willing to work very hard, make sacrifices, and go without things they want, and often postpone purchasing needed items.

My husband and I have cut our debt in half in the last 2 1/2 years which feels great and makes me proud of myself for finally taking responsibility for myself.

But it sure hasn’t been easy.  I still find myself in a section of the department store I have no need to be in and picking up things that I really want; only to have walk back to the shelf and replace the items after I  regain control of myself and shake off that “gotta have it mindset” I get in, and remember that I want to get out of debt more than I want that pretty, shiny, bright new item.

To be successful at stopping the cycle of overspending and getting out of debt requires intense concentration, a lot of personal fortitude and tons of determination.

I’m not trying to talk anyone out of making the effort to get out of debt.  I hope everyone who is reading this and who has debt will work on paying it off.  It’s just that I think a lot of experts downplay how hard it is and say to “just do it.”  That’s all fine and great but “just doing it” isn’t always so easy.  A person has to truly be ready to do it and be aware that it may be the hardest thing they ever do.

The reward is truly worth it though.  Ask anyone who is debt free and they will tell you.  My brother and sister-in-law paid off the last of their debt in 2008.  They don’t owe anybody any money – not even on their house.  My sister-in-law said it’s a feeling that is really hard to describe and that she never realized how great of a feeling it is.  She said it’s a huge weight off her shoulders and makes her happier than she ever thought possible.

I’m so anxious to experience that feeling for myself….and I will.  You can too.