Getting out of debt is possibly one of the most difficult tasks you can face in life. One slip up, and it’s bankruptcy for you. Follow these rules, and you’ll be on your way to getting out of debt.

Follow these 9 Rules, and you’ll be on the right track to being debt free…

1. Know Where You Stand

You absolutely. Positively. Must. Know. How. Much. Debt. You. Have.

There is no getting around this critical first step.

Layout all your bank statements, credit card statement, mortgage docs, everything.

You can’t know where you are going until you know how far you have to go!

You can setup a simple folder system for each debt like I did in 2007….

2. Slash Expenses Like Shredder

You must cut expenses like a butcher. Slash away.

Everything non-critical must go. It’s a painful process.

Netflix. Slash.
Starbucks. Slash.
Eating Out. Whack.
Movies at the Theatre. Gone.
Vacations? Hope you like camping.

Look, no one said getting out of debt was gonna be fun. It’s not. But the rewards of seeing your debts eliminated make it all worth it.

The first time you completely pay off a credit card or collections account, it makes all this slashing worth it.

3. Spend Less Than You Earn

No, really.

4. Increase Cashflow

Once you’ve slashed your expenses to a skeleton of your former spending habits, you need to add some fuel to your debt attack. And then means increasing the cash you have coming in each month.

  • Stop all retirement contributions.
  • Sell non-essential items on eBay
  • Ask for a raise at work
  • Pickup extra hours at work
  • Start a house-cleaning service in your neighborhood
  • Get a 2nd/3rd job

None of these steps are easy either. Stopping retirement contributions is not always recommended by financial peeps, but I think it’s stupid to contribute to your future when you are drowning right now. Stop the bleeding now. Take that extra cash to build an “oh crap” fund or pay-down your debt.

5. Build an Oh-Crap Fund

Forget an emergency fund. You need a “oh crap” fund. A overdraft charge can easily send you into an “oh crap” moment. So setup a $1,000 (or whatever you need to avoid an “oh crap” moment) account and keep it stashed in an online account you can access easily, but not instantly.

5. No New Debt*

It’s debt diet time. Absolutely no new credit cards, car loans, etc while getting out of debt. I don’t care how much Best Buy is going to give you off that iPod purchase for opening a store card. Just say no to new debt.

*The only exception being if you’re consolidating your debt with a loan from Lending Club for example. Even then, you must payoff your cards with that loan and nothing else! Be careful.

Otherwise, you must be on a strict no new credit diet!

6. Change Your Brain

No matter what techniques you employ to get out of debt, they will all be fruitless unless you can change your mental relationship with money.

The brain isn’t just your biggest sex organ, it’s your biggest obstacle you must overcome. Over the years you’ve built up thousands of unconscious habits relating to money. Many of them must now be broken to get out of debt.

Recognizing the importance of changing how you interact and think about money was the most significant factor in my own debt turnaround.

7. Think Big

Sometimes just the thought of being debt free will be enough.

But sometimes it won’t be enough.

Where do you really want to be financially? Beyond being debt free? Do you want a 12-month fund for expenses? A new house? A million bucks?

Thinking big is OK when you can use those dreams to motivate yourself to get that 2nd job, or resist that electronics purchase.

For me, I put up a printout of a small plane that I would someday like to own. I put it up in my bathroom to remind me everyday of what I was working towards beyond just being debt free.

8. But Set Small Goals

If you have $60,000 of debt….that’s a big number. Too big to tackle all at once. Setup small goals.

You can go the Dave Ramsey snowball method and pick your smallest debt first to tackle. I’m a fan of this way of setting goals.

Small, baby steps.

9. Celebrate Every Win No Matter How Small

I remember very clearly what I did when I hit a big goal….I splurged on a frosty and fries from Wendy’s…and it was awesome.

Find a small, cheap way to reward yourself for following these steps and hitting a milestone on your journey out of debt.

What did I miss?

What rules are you following to get out of debt?

This post is part of Lending Club’s Debt Buster Challenge that I am participating in along with 4 other debt busting bloggers, Flexo, Digerati Life, Debt Free Adventure, and Steve the debt guy.


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