5 Key Steps for Getting Out of Debt

If your loans have spiraled out of control, use these strategies to start fresh in the new year.

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As America languishes in a jobless recovery and struggles to recover from the Great Recession, you and many millions of others may be feeling the uncomfortable pressures of growing debts. Everyday expenses make it increasingly difficult to pay your debts as you always have in the past.

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But you cannot allow your debts to take any more control over your life. Commit to resolving your debt problems today. Ignoring your debts or only making minimum payments will only make them worse and haunt you in the future if you don’t deal with them now. Here are five STEPS to get you out of debt.

1: S for Stop. Stop paying others to use their money. Stop your borrowing habits. Stop taking on new debts. Stop creditors’ harassing phone calls and letters with a letter under the FDCPA guidelines. Like kicking any bad habit—smoking, drinking, gambling—the hardest, but most important step, is stopping the behavior that is causing you harm.

2: T for Time. Take time to step back, take a breath, and figure out your complete financial picture. Take time to call your lenders and negotiate for the reduction of your debts to a level that you can realistically pay off completely in less than three years. Negotiate better interest rates and lower principle balances. Take the time to make a budget and plan on how to get rid of your debts. Most importantly, pay yourself first and start saving to handle the unexpected.

3: E for Execute, After you’ve stopped your negative behaviors, stopped the harassing creditors, assessed your position, negotiated with your lenders, and made a plan to get out of debt, you need to execute and follow through on your budget and plan. Keep track of your spending. No impulse buys. No rewards because you’ve been good for a long time (well, at least very occasional rewards). No new debts! Discuss spending and expenses with your family. You will have to sacrifice in order to stay on track but perseverance is key.

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4. P for Protect. If you are not having success executing on your plan, you are not progressing fast enough, or your debts have spun out of your control, you may need to protect yourself and your assets. Protect yourself by seeking professional help and support. If you are facing foreclosure on your home, the loss of your car, wages garnishment, or you feel completely crushed by your debts, seek the help of a bankruptcy lawyer or a free legal clinic. If you are not making progress on your budget and want some help, you may want to consult a reputable credit counselor and other resources noted at roadoutofdebt.com. If you’d like support from others who are going through the same issues as you, you may want to look for a Debtors Anonymous near you.

5. S for Smile. Getting out of debt is by no means as fun as getting into debt. But, the satisfaction you get when you solve your debt problems is a far better feeling than any you had when buying the things that got you into debt. When you challenge yourself to face your debts head on, you take a very positive step in your life. You free your money for yourself and stop making your creditors wealthy. You will see the world in a brighter light.

Finally, your past financial problems should not prevent you from reaching great financial heights. Just ask Donald Trump, J.K. Rowling, Oprah Winfrey and millions of others who overcame great financial problems and reached fantastic financial success. Every day that brings you closer to completing your road out of debt, the broader your smile will become.

Theodore W. Connolly is co-author of the book The Road Out of Debt: Bankruptcy and Other Solutions to Your Financial Problems.