How to Get Out of Debt in 5 Practical Steps

Jul 19, 2017
Rachel Cruze


On most occasions, debt doesn’t happen overnight. It’s usually a small decision here and a money mistake there. But before you know it, you’re up to your eyeballs in debt—and the stress that comes with it.

All those small choices here and there can lead to one big change—you decide to get rid of your debt! But that’s sometimes easier said than done. We can talk all day about giving up credit cards and getting rid of car payments. But when it comes down to making those decisions every day, are we really ready for that jump?

To really change your view on debt, you have to change your lifestyle. That means doing things you’ve never done before and turning them into habits that become part of your life.

So, what should you do to begin living a debt-free lifestyle?

1. Budget

A budget isn’t the same thing as tracking your spending, having enough money in your account to pay for (insert item here), or kinda, sorta knowing how much money is in your bank account.

So, what is a budget really? A budget is simply a monthly plan for your money. Whether you create your budget in Excel, on paper or online (might I suggest you try EveryDollar for online budgeting), you have to be intentional about sitting down every month before the month begins and creating a plan for your money for that specific month.

I recommend a zero-based budget. List out your total monthly income, then list all of your monthly expenses—all your bills and all your other expenses, like food, gas, clothing and so on. Everything. Once you subtract your total expenses from your total income, you should get zero.

That’s the zero-based budget. Every dollar has a name and is assigned to some category within your budget. The budget is priority number one in getting out of debt—and staying out of debt.

2. Save

This is common sense, but sometimes it can be difficult to put into practice. Once you get out of debt, the best way to stay out of debt is to avoid it. One great way to do that is to have an emergency savings account you can fall back on.

This isn’t a credit card. This isn’t a bank loan. This is a savings account to make life’s emergencies seem much less urgent. It’s for the surprise flat tire or the unexpected ER visit.

I suggest starting with a $1,000 emergency fund. Once you’re out of debt, bulk it up to three to six months of expenses—an amount that will cover you, or your spouse, if you ever lose a job.

After that, you can start making your money work for you even more through investing and retirement savings. All these habits will make sure you never have to go into debt again.

3. Stop the Comparisons

Once you’re debt-free, you’ll feel like a huge weight has been lifted off your shoulders. You might look around, see what you’ve been missing while watching your spending all these years, and be tempted to indulge yourself a little bit.

The biggest temptation might come from seeing everything your friends are buying or all the stuff they’re showing off on social media—you know, the new car, the fancy beach vacation (although there are ways to budget for a vacation), the brand new house.

But here’s the deal. Seven out of ten households in America live paycheck to paycheck. Most of them are buying all that fancy stuff using debt—credit cards, bank loans, and car payments. They’re one job loss away from a money mess and more financial stress than you can imagine.

So now that you’re out of debt, I want you to go at your own pace. Stop letting social media influence how you spend your money. One great way to go back into debt is to start doing the stuff that put you into debt in the first place—borrowing, overspending, and a lack of patience. This is too easy to do if you start looking around and falling into the comparison trap. Stay focused on your own money goals and you’ll keep living the debt-free lifestyle for good.

4. Take a Breath

You’ve been working hard and I want you to keep working hard to reach all your goals. But I also want you to take a breath every now and then and enjoy yourself. Don’t overspend and blow up your budget, but go on a vacation, enjoy a night out every month, save up for a nice used car or spend an afternoon at the spa. Start doing some of the stuff you sacrificed while you got out of debt.

This is the fun part of living debt-free. You can do what you want—as long as you can pay with cash, of course. I still want you to be intense and keep setting money goals like paying for kids’ college, saving for your retirement and paying off your house. But there’s nothing wrong with taking some time to sit back and enjoy the view. You’ve worked hard.

5. Keep Dreaming

You’ve come a long way, but you’ve still got some more you can do. Where’s your dream vacation? How much do you need to retire comfortably? These are the types of things you can think about when you’re debt-free.

You don’t have any payments going out to credit cards and loans, so you can dream big. Put all that extra money toward your future and your family’s future. Give to charities and organizations you’ve always connected with. This is your chance to make a difference while continuing to push forward and dream about your future.

Becoming debt-free isn’t always easy, but the time and sacrifice is completely worth the effort. Once you achieve that goal, you’ll be able to live, give, save and spend like you never have before.

So, if you haven’t made the decision to live without debt yet, I’d encourage you to seriously consider making that choice. Your future, and the future of your family, will never be the same.

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