5 Things You Need to Do to Pay Off Your Debt

If you’re having a hard time managing your credit card or loan debt, you’re far from alone. Millions of people are in the same boat, which is why financial services companies have devised so many different ways to help. Examples include debt counseling, debt consolidation loans, and balance transfer credit cards. All of them have their time and place, but none of them are as good as digging in and paying off your debt on your own.

Here are five key things you need to do to achieve that goal.

Do an Honest Analysis

No matter what your financial situation may look like, you’ll never solve your debt problems if you don’t face the music. It is not uncommon for people to just bury their heads in the sand and deal with snowballing debt problems by pretending things aren’t all that bad. This will only leave you trapped in the cycle of debt, and it carries a very real risk of bringing you to a much worse place than you’re already in.

So, here’s what you should do at this stage:

Working with firm, accurate numbers is key. This step might not be easy, but it’s definitely essential.

Reconsider Your Budget

Tracking your spending over a month or two will help you identify areas where you could improve your approach. Look for common bad habits, such as:

These types of habits are budget-killers. To become debt-free, you’ll need to impose greater levels of responsibility and self-discipline, at least temporarily. The higher your debt, the truer this adage will be. Cut unnecessary spending wherever you can and recommit that money to paying off your debts.

Set Goals and Implement a Plan

Finance gurus often talk about the psychological power of setting goals and creating plans to reach them. To become debt-free, you’ll need a specific end objective as well as a way to get there. At this stage, you’ll want to consider questions like:

Consider multiple scenarios. For example, if you’d like to be debt-free in a year, try recalculating the numbers with a time horizon of nine months or 18 months to see how it would affect your plan.

In coming up with your strategy, remember: the key to success is making changes you can live with. Your plan won’t work if it isn’t realistic.

Avoid Accumulating New Debt

This step is critical: while you work to dig your way out of your current debts, you should do everything in your power not to add to your debt load. Bloating your existing debt will only delay your success, and in a worst-case scenario, it could completely derail your progress.

Depending on your spending habits and personality, here are some tips and strategies you can try:

As a last resort, you could also close one or more of your current credit card accounts. This will result in a ding on your FICO credit score, but that’s a minor downside that may well be worth it in the long run.

Stay the Course

Commitment, focus, and discipline are the keys to success in becoming debt-free. If you’ve budgeted correctly, and if you’ve managed to get the numbers to line up in ways you can live with, executing your plan should go smoothly.

One psychological trick you can use to make the whole process easier is to build a small bonus fund into your monthly budget. Every month, you can sock away a small percentage of your income, like 5% or so, and treat that money like it doesn’t exist while simultaneously keeping track of it. Then, you can reward yourself for sticking to your plan by using that money to get yourself a small treat at the end of the month. Alternately, you can let it roll over from month to month and save up for a bigger reward.

If you’re still having a hard time getting out of debt, or if you’ve encountered unexpected expenses or financial obstacles that impact the plan you’ve made, you may need to consider other options. Debt counseling and consolidation loans are usually the best places to start if you need some outside help to reach your financial goals.