5 Steps To Debt Freedom

Experiencing personal debt can feel like falling into quicksand: no matter how hard you try to climb out, you just keep sinking further down.  In a society where more is better, it can be difficult to watch your peers enjoying the finer things in life while the collections agencies are knocking at your door.

If you’re in debt, you’ve probably made yourself a lot of big promises.  “I will conquer this,” you’ve said, and three days later you were completely overwhelmed.  This may be what’s tripping you up.  The world’s problems are not fixed overnight, just like weight isn’t lost by taking one magic pill.  Be honest with yourself.  Arm yourself with knowledge both about your own behaviors and the many options available to help you reach debt freedom.

5 Steps To Debt Freedom

Step 1 – Understand Your Situation

First, know what you’re dealing with.  Take a pad of paper with you wherever you go for one week and write down everything you spend.  Then rate each purchase on a scale of “must have” to “want to have” to “don’t need.”

If you rely more on debit cards, sign up for a money-tracking site like to have your spending automatically tracked and categorized.  This will also help you evaluate how you pay for your purchases.

If you have more than one credit card, cut the extra ones up.  Once you’ve evaluated your spending, cut out your “don’t needs,” and think critically about your “want to haves”.  Is there any way you can make them cheaper?  For instance, if you “want to have” coffee, can you make it at home six days out of seven?  Can you use generic rather than brand products?

You don’t need to cut out all of your creature comforts, but by identifying them as such, you can determine just how important they are to you, and instead use them as occasional rewards rather than as givens.

Once you’ve made these decisions, add up all that you’ve cut out.  If you’ve saved, say, $300 per month, this is money you will be able to apply in later steps to paying off your debts.

Step 2 – Organize Your Debt

Next, open up a spreadsheet and start making columns.  Make one column for your fixed expenses-costs that do not change, like mortgage or rent, health insurance, and so on.  Make another column for your variable payments-things like gas, gifts, and restaurants.  Make one more for your debts, and another for your income.

In your debt column, highlight “good” vs. “bad” debt; that is, student loans with lower interest rates vs. credit cards higher rates.  Then add it all up. This is a great way to visualize just where your money is flowing and what you can do about it.

Step 3 – Make a Spending Plan

Now, make a spending plan.  Start by paying your fixed expenses and minimum balances.  Then pay any variable expenses you must to avoid going into more debt.  These are the things you just have to do to keep your head above water.

Take a look at that $300 you’re now saving every month by cutting out extras.  It’s not just a lump of money; it can do things!  Put that money away in a savings or money market account with as high an interest rate as you can find, and keep doing so until you reach the $1,000 mark.  This is your emergency fund; it will help you stay out of more debt should something unexpected come up.

Step 4 – Eliminate Debt Strategically

Choose a target.  Which debt do you want to tackle first?  Start on one with a higher interest rate.  19% might not seem like a lot more than 15%, but it adds up quickly.  If you have many debts with high rates, call the companies and try to renegotiate for a lower one.  You’d be surprised what the term, “I’m a loyal customer” can do!

Step 5  – Increase Your Income

If you’re finding after taking these steps that you still do not have anything left to pay off more than the minimum balances on one debt at a time, then it may be time to consider increasing your income.  This could be by searching for a higher-paying job, but if this is too intimidating, stick to that small steps mentality.

Can you make that extra $300 per month by babysitting? How about working in a coffee shop, or doing some freelance work on the side?


To summarize, that’s: one credit card (or none!), cut out extras, pay off minimums, focus on one high-interest debt, increase income. You may also want to try old fashioned approaches, like paying only in cash, separating all of your expenses into envelopes labeled, “fixed,” “variable,” and “debt” and not spending anything after those envelopes are empty.  You can also put limits on your cards, or make automatic alerts on an online payment tracker.

Remember, this is about understanding your own mentality.  What can you do to make money more concrete to you?

Feeling overwhelmed?  Here’s a little secret: we all have debt-especially those people you see driving fancy cars.  The theme in any “get out of debt” plan should be moderation.  If you find yourself sliding, try to figure out why rather than beating yourself up.  Did you have a tough week and really need an extra purchase on iTunes?  This shouldn’t be a big deal now that you know your finances intimately.  Just look at your upcoming week and see how you can make up for it.

If you ever start really feeling deprived, make a wish-list and write down things you desire as they come up.  Once you’ve addressed your debt, look back at that list and see what things you can now afford.  You may find that time has satiated those desires more than the purchase itself.

While paying off debt is never fun, remember that you’re paying for your future.  Get the past settled so you can move on and start doing what you’d really like to with that hard-earned money!

By High Yield Savings Accounts

The founder and editor of with a passion for personal finance and experience in the financial industry.