How to get out of debt

The problem starts well before you pull out your credit card. Its actual genesis is in the questions you ask yourself about money.

If you want to get out of debt, I have some very good news. You can ask yourself five questions and if you are willing to answer them honestly, you'll find yourself debt-free in no time. Most people who are underwater financially think they know what caused the problem. And on the face of it, being in debt seems very straight-forward:

-- Too much spending.

-- Not enough income.

But in my experience, the root causes of being in debt are a bit more subtle than this. The problem starts well before you pull out your credit card. Its actual genesis is in the questions you ask yourself about money. The questions you ask yourself (and your answers) will impact every part of your financial life -- from your credit score to your investment success. Here are the five questions you should start asking yourself to cure this problem rather than exacerbate it:

1. Am I committed to getting out of debt?

Getting out of debt is going to take work. You are going to have to get out of your comfort zone too. Let's face it. Your very best thinking got you to where you are today. In order to spark change, you're going to have to take a new road. Are you ready for that? As you'll see, you can get out of debt pretty easily but it's going to require a new way of being around money. If you aren't fully committed to do the work, you'll likely slip back into debt. That's an ugly idea. Instead, get fully committed.

2. How much do I spend every month?

I know that you want to get out of debt fast, but we are looking for lasting change. In order to do that, you must do some groundwork first. You simply must know how much you spend every month in order to get out of debt once and for all.

One way to track your spending is to use budgeting software like YNAB (You Need a Budget) or Quicken. But you can also use a spreadsheet. It doesn't matter how you do it, but you simply must track your spending every month and continue doing so. This is the no. 1 most important financial move you can make if you want to be successful.

3. Can I afford this lifestyle?

Of course the only way to know if you are spending too much is to compare it to your income. Look at all your sources of income -- work, pensions, social security, business and investment income. Is the total of this income greater than your average spending on a monthly basis?

If not, what are you going to cut in order to bring your spending in line? Are you going to start a side business to increase your income? Please don't advance to the next question until you have a handle on this. If you are serious about getting out of debt, you need to know what exact action steps you are going to take in order to bring spending down or income up.

4. What does my future look like if I don't make a change?

The three steps above take work. At some point you will be tempted to turn the page and go on to some other project. Resist that temptation. There is no way you will be financially successful if you don't get out of debt. Project what your life is going to look like 5, 10, 20 years down the road if you continue down this path. Keep that picture very clear in your mind. This will help motivate you to stick with the program.

5. What is the most important thing to change and when am I going to do it?

After reading the above four steps, which one are you most resistant to? That's the step you need to apply most of your energy to.

Are you in debt? How did you get there? What have you done so far to cure the problem? What's worked best? What has not worked?

Neal Frankle is a Certified Financial Planner in Los Angeles and owner of Wealth Pilgrim, a personal finance blog.


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