Beginner’s Guide to Getting Out of Debt

Life can get out of control sometimes, that is an ugly truth. But just because things may seem a bit out of hand, doesn’t mean that we can’t get things under control. This same thing relates to consumer debt, which can pile up in a hurry.

While building your credit is an important part of your financial journey, without proper control and good decision-making, you can build up an unwanted sum of personal debt. At times, this debt may seem unbearable, but believe me – there is always a way out! To help you get started on your debt-free journey, I’ve put together a list of practical steps that will help you get back to living a life with financial freedom.

Step 1) Analyze your current debt situation.

It is critical to take a step back and look at all of the debt you currently have. I recommend making a list, largest balance to smallest balance, and then begin writing out what your current monthly minimum payments are for each of these accounts. If you have a mortgage payment, you can leave that out of this list (you’ll see why in step #2).

Step 2) Review your expenses. 

To help you build a strong debt-free plan, we need to know how much expendable income you have to work with. Make a second list that details out your expenses for each month – both fixed expenses (mortgage payment, phone bill) and variable expenses (eating out, water bill). Once you have made up your list of items you’ll need to pay for in the month, let’s move on to step #3.

Step 3) Do the math.  

So, now that we have our debt payments and expenses laid out, let’s subtract them from your monthly income. We do this, so we can find the amount of expendable income you will have to put towards debt at the end of each month. Here is an example of how to find this.

Monthly Income

-Total Monthly Minimum Payments (debt): 

-Monthly Expenses                                     ___

=Expendable Income to use Toward Debt

Example: Let’s say John makes $4,000 a month, has $500 in minimum payments on his debt, and his monthly expenses total to $2,500. This would mean that John has $1000 of expendable income to use towards his debt.

Step 4) Attack that debt! 

Now, using what Dave Ramsey calls the “debt snowball method”, attack that stinking debt! Starting with your smallest balance on a debt account, begin to throw that $1000 in expendable income right on top of your minimum payment. Once you have knocked out that small debt, take the previous minimum payment from the small account AND that extra $1000 in expendable funds, and place it towards the next largest debt… and so on. Pretty soon, your payment snowball will be pretty dang big, and you will be able to pay off your larger accounts in no time.

Boom. That is it – that’s the plan. Do you know what you just did by completing the above steps? You built a budget. A budget that is going to help you get back on track and get your finances in order. My advice: a budget is only good if you are practicing what the budget is preaching. Stick to your plan, keep your head down, and before you know it, you will be debt free!

P.S. Step 5) Get a side hustle – it helps 🙂

Robynn Halstad Headshot

Robynn Halstad

Office: 218.759.6919

Robynn is the Retail Market Manager for Deerwood Bank. She is based out of the Bemidji office and has been with Deerwood since 2012. Robynn obtained her B.B.A in Finance and Management from Bemidji State in 2012. In her spare time, Robynn enjoys spending time with her two children and husband. On a nice summer day, you can find Robynn enjoying the outdoors in the garden, fishing, or taking a ride in the side-by-side.

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