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.

Keeping a spending diary was a big eye-opener for my husband and myself.  Yes, it’s a huge pain in the arse to write down every penny you’re spending but it’s a vital step in seeing where money is going and also is an invaluable tool when setting up a budget.

I wasn’t too keen on the idea of keeping a spending diary when we were deciding it was time to get serious about getting out of debt.  I actually refused to do it at first because, as I told my husband, “You’re just going to use it as a way to criticize and judge every penny I spend” and there was no way I was signing up for that kind of misery.

So we made a deal.  There could be absolutely no judging or being critical about what was being spent.  The spending diary was a “fact finding” mission only.  But, just to be sure my husband wasn’t tempted to peek and say something negative to me, I kept my spending diary (just a cheap little notebook) with me at all times and never left it laying where he could easily pick it up and look at it (I love him but he’s just as prone to temptation as the next person!).

We decided to track our spending for a month because my husband and I are both paid monthly.  You don’t have to do it for a month if you don’t want to – even a week will help – but I think doing it for a month is much better because it gives a better overall picture of spending.

What did we find out in that month?  The biggest shock was our food and restaurant expenditures.  It was, by far, our largest spending category – almost $800 on restaurants alone!  And it wasn’t from going out every weekend to nice restaurants with white tablecloths and cloth napkins.  It was from being lazy and not wanting to cook 3 or 4 nights a week and going out to grab a bite instead or picking something up on the way home; or not feeling like packing a lunch and running out for lunch instead.

We also had a lot of what we labeled as “miscellaneous” spending – things that didn’t fit into our categories of: groceries, restaurants, Montana (not the state – our dog’s name; yes she got her own category.  She has to eat too); clothing; toiletries (toothpaste, shampoo, haircuts, etc.), entertainment (didn’t include restaurants but did include going to see movies, bowling, and class fees for crafts classes I take), cleaning supplies, and gifts (Christmas, birthday, wedding, anniversary and any other presents along with cards and wrapping paper).

We created a miscellaneous category because it’s hard to categorize some things like batteries, light bulbs, photo developing, ink and paper for our printer, parts to fix the leaky sink, potting soil, charcoal for the grill, a donation to a charity, a magazine, gym fee etc.  We thought about having a household category but decided against it because not everything I just mentioned fit into a household category so we still needed the miscellaneous category and because we wanted to have as few categories as possible so keeping track of a budget later on wouldn’t be so cumbersome.

We didn’t track our gasoline expense, mortgage, insurance, utilities, or credit card payments in the “spending diary” notebooks we used.  Those bills we were either paying online, paying with a debit card, or writing out a check so we already had a history of exactly how much we were spending on each of those things.

We also didn’t create a budget before our “spending diary” tracking.  We wanted to see where our money was going because it felt like it was flying out of our pockets.  I remember looking in my wallet a lot of times and wondering where all my money had gone.  That meant we spent like normal during our tracking period kinda.  After the month was up and my husband and I sat down to see how much we had spent and what we had spent it on we both admitted there were things we didn’t buy because we didn’t want to have to write it down (and no it wasn’t because we wanted to buy porn! – at least I didn’t).  For example, I love to buy books and magazines because I really enjoy reading.  But I never realized how much I was spending on them.  Once I started writing it down I started to become alarmed at how much money I was forking over for that reading material and by the end of the month I was already willingly cutting myself back.

My husband’s only shock from his spending journal was the amount of money he fed the vending machines at work for bottled water, soda, chips and candy bars. Hitting the vending machine for a beverage and snack a couple times a day doesn’t seem harmless (it’s just some quarters and dollar bills, right?) but added up over the course of a month it came to close to $100 for my husband and all he had to show for it was a few extra pounds on the scale.

Once we had our month’s worth of spending in front of us in black and white it was easy to see why we always had more month than money and why our credit cards got a major workout.

We were to the point of knowing how much debt we had and how much money we were spending.  The next step we did in starting to get out of debt was set up a budget.  That will be the next post in my “How To Get Out Of Debt Series.”

So do yourself a favor and keep a spending diary.  We wrote our spending in small notebooks we got 2 for a $1, but you can use whatever you want whether it’s a notebook, plain paper, your PDA, or the back of napkins.  How you keep track of the spending information isn’t important; doing it is.

Remember, you will only need to do this one time, whether it’s for a week, 2 weeks, or a month.  Then you’ll be ready to set up your budget.

Don’t wait any longer.  Start today!

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.