Make Peace with Piggy

by WiredBerries Editors — May 8, 2008

You're a responsible being who can take care of herself - but you just can't seem to dig yourself out from debt. If you find that you're still paying for those boots that you're not even wearing anymore, consider creating a get-out-of-debt plan. Although the process seems overwhelming, with a little discipline, you could be facing debt freedom sooner than you think.

Losing debt is kinda like losing weight and involves a lot of the same steps. First, you have to stop accumulating. Just like you have to lay off the donuts in order to lose weight, you need to stop excess spending. Cut up maxed-out credit cards until you are left with only one credit card that you use only for necessities (food, rent, medicine).

Second, keep a spending log. As with a food diary, a spending diary will reveal the money you spend without even noticing (that non-fat latte every morning; six gossip magazines every weekend). Every day for at least one month, write down every penny you spend, no matter how small.

Third, break down your spending into basic needs, will needs, and wants. Basic needs are those necessities mentioned earlier - the fruits, veggies, and whole grains of your budget. The "will needs" are things that you will eventually need to spend money on but can live without while you get in better financial shape (clothes for work, gym membership). And the wants, are, well, wants.

Based on your spending log and categorization, determine where you can cut back. As with a diet, if you are unrealistic and cut too many calories, you'll just want to go out and gorge, so set realistic amounts. Once you figure out where you can trim a little fat (skip the latte every other day, workout at home, get one Netflix at a time instead of three), determine the amount you can set aside to pay off debt.

Next, make a spreadsheet that clearly shows what you owe and to whom, including your balance, your monthly payment amount, and your interest rate. Prioritize where you'll apply that cash you're setting aside. If you have overdue debts, pay those off first. Then pay off the others in order of the highest interest rate, continuing to pay the minimum on the others. As you pay off one debt, put that money then towards the next debt in line.

With patience and diligence, your hard work will pay off (pun intended) and you'll feel like a million bucks!