Everyone has a difficult time figuring out how to get out of debt and staying out of it.  Sometimes we pay off our debts and feel a sense of victory and then go right back into debt again figuring we have conquered the monster so it won’t get us again.  What we don’t realize is that that debt monster will sneak up on us again, and the next time may bite us even harder. 

The first step to getting out of debt is to change your belief system around money and debt.  Ninety percent of the problem is behavior.  Our behavior is driven by our belief system.  If we believe that we will always have a car payment and that we’ll always have a mortgage payment, then we always will.  If we believe that credit cards are necessary and required in today’s society, then we will fulfill that prophecy by becoming completely dependent on them.  This is probably the most difficult step of all, and it is the one often ignored by financial experts.  We have to learn more about money and how it works, as well as how debt really works, so we can see the truth about it.  Too often what we believe has been formed by advertising and peer competition.  We have been indoctrinated by our society to believe that debt is a tool of “leverage” that we use to make ourselves wealthy.  What we don’t realize, is that it makes the lenders wealthy, not the borrowers.

Once you get past the first hurdle, and you have learned the truth about money and debt, you are ready to implement those new beliefs into your life.  You have to establish a $1000 to $1500 Crisis Fund.  However you can come up with the cash, you need this to be a cushion between you and the next financial emergency.  Don’t use a credit card as a source of funds for an emergency, which is how you get into debt not out.

The third step is to have a plan to get out of debt.  Accelerate the payments on your debts and put everything you have extra into paying down those debts until they are gone.

The fourth step is to take the monthly cash you were using to pay down debt and start saving it to bring your Crisis Fund into a balance that can cover six months of expenses.

The fifth step comes after you have fully funded the Crisis Fund.  Now you have extra cash each month to save toward retirement, and to pay off your mortgage.  If you pay off your mortgage it would provide thousands of dollars extra a month to invest.  By this time you will have changed your habits and will be living a debt free lifestyle that gives you tremendous peace of mind.  You will be living a lifestyle that now allows you to spend like you wanted to before, but couldn’t afford it.  The difference is that now if something happens like an economic crisis or a personal financial crisis, you will be prepared and not go into survival mode.