5 Tips To Get Out Of Debt And Improve Your Financial Situation

Debt can be debilitating. It can prevent you from going on vacations, buying the things you want and living your life to the fullest. Luckily, there are several steps you can take to free yourself from debt and get on the path to financial freedom. Here are 5 tips to get out of debt and improve your financial situation in no time at all!

1) Track your spending

If you want to get out of debt, you'll need to start by tracking your spending. Use a spreadsheet, mobile app or online tool—whatever is easiest for you. Ideally, you'll track every dollar that comes in and out of your wallet so that you can see exactly where your money is going each month. You might be surprised by how much money you spend on certain things or how much goes toward paying down debts and bills. Without a clear picture of your income and expenses, it will be difficult to make any significant changes to your financial situation or goals. At least once a week or once every two weeks, sit down with pen and paper (or open up Excel) and write down what you've spent over that time period.

Include everything from rent to gas to food costs. It's important to note that you don't have to include small purchases like coffee or gum if they're not adding up quickly. The goal here is just to get an idea of how much money you're spending and where it's going. This exercise should help give you a better idea of areas where you could cut back if necessary, as well as ways in which your current budget could be improved upon if possible. For example, maybe you realize that you're eating out too often and are able to save $50 per month by cooking at home more often. That may not seem like a lot now, but over time it adds up.

Over one year, saving $50 per month amounts to $600; after five years, that same amount saved would add up to $3,000! No matter how little extra cash you have lying around right now, there are always opportunities for saving money somewhere. Just remember: no matter how little extra cash you have lying around right now, there are always opportunities for saving money somewhere. Just remember: no matter how little extra cash you have lying around right now, there are always opportunities for saving money somewhere.

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2) Meet your financial obligations

It’s important to make a budget and stick to it. The easiest way to avoid going into debt is simply not spending more than you earn. If you follow that rule, then your first step in getting out of debt is already done. Start saving money: One of the best ways to save some cash is to reduce your fixed expenses—things like phone bills, insurance premiums, rent or mortgage payments and utilities can be reduced by lowering how much you spend on them every month. Look for opportunities to increase your income: You can also start earning more by working overtime or taking on a second job while sticking with your current employer. There are also other methods for increasing your income such as starting a side business or finding freelance work online.

Pay off high-interest debts first: After reducing your fixed expenses and increasing your income, you should use any extra funds to pay off debts that carry high interest rates. This will help ensure that you get rid of them quickly without paying too much interest along the way. Consider consolidating your debts: If you have multiple credit cards, lines of credit or other types of loans, consider consolidating them into one loan with one monthly payment. This will simplify things significantly and could even lower your monthly payment if combined with an extended repayment period. However, keep in mind that extending your term will also extend how long you'll need to repay your debt so think carefully before doing so.

Make sure you check out your options before committing to anything. Make paying off your debt a priority: Once you've set up a plan to get rid of all those pesky debts, make sure that allocating enough money towards them becomes part of your monthly budgeting process. By making their payoff part of each month's financial obligations, you won't find yourself short on cash at unexpected times and won't risk falling back into old habits. Then once they're paid off, continue using the same system so that new debts don't crop up unexpectedly.

How Do I Create A Monthly Budget? A good place to start when creating a budget is determining how much income comes in each month.

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3) Create an emergency fund

Building up a stash of money to cover a major financial emergency can do wonders for your peace of mind and your financial health. If you don’t have an emergency fund, here are two strategies you can use: (1) put extra cash in savings every time you get paid or (2) commit to putting extra cash into savings when it hits your checking account. Building an emergency fund isn’t easy, but once it’s built, rest assured that you will never again have to sweat over an unplanned expense—and that can only lead to better things down the road. It's important to note that having a full-fledged emergency fund might not be realistic if you're also trying to pay off debt, so see if there's a way to make progress on both goals at once. For example, you could try to build your emergency fund while paying off high-interest credit card debt.

Paying off higher interest debts first is always a good idea anyway because they'll save you more money in interest payments than any amount saved by building an emergency fund early on. If you're looking for a place to start, consider focusing on just one aspect of your finances at a time. You'll soon realize that getting out of debt is all about making small changes in order to snowball your success. Before long, those small changes will add up and before you know it, you'll be well on your way to getting out of debt completely!

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By Zach Johnston Jun 28th 2012 14 Comments

4) Use Money Management Apps

An average debt ratio for a successful entrepreneur is 50%. Don’t think that you need to eliminate all of your debts before you can start making a positive impact on your finances. Learn from others and put what they’ve done into practice in your own life. If someone else has successfully eliminated 80% of their debt and is experiencing financial success, then it’s possible for you to do so as well.

All you have to do is learn how they did it. There are many great money management apps available that will help you get out of debt faster than ever before. The key here is consistency; make sure that you check your account balance at least once per week and adjust your spending habits accordingly if necessary. You should also try using some sort of cash-flow system or app which will keep track of how much money comes in and goes out each month.

Remember: just because someone else was able to pay off a large amount of debt doesn’t mean that there aren’t things about their situation that could be improved upon! It’s important to remember that different people have different lifestyles and situations. Just because one person can afford to buy a new car every year doesn’t mean that everyone else can. It takes hard work and dedication but anyone can live below their means while still enjoying themselves. It all starts with learning how to manage your finances better—and getting out of debt is a good place to start!

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5) Learn from success stories

One of the best ways to get out of debt and improve your financial situation is to see what other people have done in your position. Check out sites like Reddit, Facebook, Quora and Consumer Affairs for success stories where others are willing to share their lessons learned. Often times they will go into details about how they got themselves into debt, and how they made it back out. Learn from their successes and failures so you can apply that knowledge towards your own situation.

Be careful not to take advice from strangers as gospel, but rather look at it as a jumping off point for a new way of thinking. For example, if someone shared their story about getting into $50k worth of credit card debt and then making payments on $500/month for 10 years before paying off all their cards - that's just one story, but there's a lot we can learn from them: stay away from credit cards at all costs; don't spend more than you make; etc...

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You may be able to make better decisions based on these points alone. Or not - remember these are strangers telling their story! But still, it might give you some ideas to think about. If nothing else, you'll know someone who has been through something similar to you which could help alleviate any feelings of guilt or self-doubt. If they were able to do it - why can't I? Remember though, don't borrow money from friends or family. That's a great way to ruin relationships with those close to you (and maybe even lose those relationships altogether). Plus, if you're struggling financially and need help now, borrowing money isn't going to help anyone in your situation.