The 7 Steps:
STEP 1: Make a commitment to yourself that you want to get out of your debt. This has to begin with a strong will and commitment from you. Find a strong reason for you to do this. Imagine if you continue living in debt, why might it hurt you? Or why might it hurt your loved ones. Imagine what you might do with the extra money you usually use to pay your debt with when you already get out of debt.
STEP 2: STOP Making New Debt Now!!! All new charges you put on your credit cards or consumer credit has to be paid off in full the next time you make payment. Use only one credit card or maximum 2 so that you can get a better control of it. You can cut up your credit cards except the one or two if you find it necessary to reduce temptation.
STEP 3: Put together a list of all your debt such as credit cards, consumer credit such as store credit, car loan, home mortgage, etc. Include in the list debt name, debt amount, interest rate and the amount of payment you usually make each month. See if you can transfer some of your higher interest debt to the lower one.
STEP 4: Review your list and:
a. If you are currently making payment a little extra than the minimum amount of payment on each debt, you are ahead of the game. However, you might want to change the procedure by paying the highest interest rate debt (usually credit card) the minimum amount of payment required PLUS all the extra money you usually put to pay other debts more than theirs minimum. Continue paying all other debts theirs minimum amount of payment required.
b. If you are currently only able to pay the minimum amount of payment on each debt, you have to figure out a way to make extra money, let say $150-$200/month (the amount of money might vary for different individual). Just to give you some ideas, this extra money could come either from making a new income or from cutting down your unnecessary expenses such as cellular phone bill, TV cable bill, etc. After you are able to come up with the extra money, pay the highest interest rate debt the minimum amount of payment required PLUS the extra money you come up with while continue paying all other debts the minimum amount of payment required.
c. If you are currently not able to make the minimum amount of payment on your debt, I would suggest that you call the credit cards’ officer and tell them your situation. Tell them that you eventually want to pay off your debt but you are currently having problem financially. They usually offer you a solution such as reducing your interest rate or freezing your interest rate for a period of time. In the meanwhile, you have to figure out a way to make extra money as mentioned in step 4b until you are able to pay the highest interest rate debt the minimum amount of payment required PLUS the extra money you come up with while continue paying all other debts the minimum amount of payment required.
STEP 5: When the first debt/credit card is paid off, pay the next debt (the second highest interest rate debt) the minimum amount of payment required PLUS the amount you usually pay the first card. After the second card is paid off, continue the procedure with the next debt. NOTE:It is important to pay off the highest interest rate debt first and then pay off the next highest interest one to the lowest one. The amount of time to pay off all the debts could be a lot longer when you try to pay off all the debt together by paying a little extra on each debt.
STEP 6: When you pay off all your credit cards and your consumer credits, continue the procedure with your car loans and house payment until you completely get out of debt.
STEP 7: Now that you are completely get out of debt, for the next step you should put the amount of money you usually make to pay your debt toward your saving and investment.