The first step in getting out of debt is to Get Real! Get real with yourself and with those around you whose lives have been impacted by your debt. Those people usually include your spouse, your children, and/or your parents. Sit down with those credit card bills and really look at them to see and understand how you've gotten into this situation. Only by understanding and being truthful with yourself can you truly begin to fill in the financial hole that you sit in now.
Make More, Spend Less
There are only 2 ways to get out of debt: (1) Make more and/or (2) spend less. It's really that simple. It sounds common-sense and childish but it's not. I know it's not because more and more on this site, there are mounting questions on this very issue. You first got into debt because you were spending more than you made. That is, by definition, what debt is.
How do I make more money?
You make more money by working more hours at the job you currently have and by taking on more shifts. You make more money by taking on a second job on the weekends. You make more money by taking on a third job even. Whatever it takes to put food on the table and pay the bills and pay the bills down fast is what it takes. Sacrifices will need to be made in the short run but it will be sacrifices that will be worth it for you and those that your debt has impacted.
How do I spend less?
Most Americans are spending their take-home pay on items that are really not necessities while they are racking up debts on credit cards and home equity lines of credit. When you sat down in the first step and truly looked at those bills, there are things, I guarantee, that you could do without - whether that be the weekly trip to the salon or your subscription to a magazine or a membership at the local golf course. During these difficult times, budgeting is everything and it is also the key to spending less. You can find online budgeting tools for free that you can utilize. The key is to sit down and go through your credit card and bank statements, line-by-line, to see what can be cut.
Which debts do I pay first?
To get out of debt, you need to make your money work for you and to make it go the distance. Make a list of all your debt accounts, their balances and the interest rates you're being charged. Now, organize them from highest interest rate to lowest interest rate. You will pay the minimum amount required for each of the debt accounts every month except for the highest interest rate account. You will start to put every available dollar towards paying down the highest interest rate account first. Eventually, that account will be paid off. You will then take all the money you were paying monthly towards that paid off account and add it to the minimum you were paying on your next highest interest rate account. You will continue to do this until all of your debts have been paid off. This is the most financially sound way to pay off debt.
When do I declare bankruptcy?
Bankruptcy is an option but is not an option that anyone should take lightly. There are grave consequences when you file for bankruptcy years down the road. The general rule I like to go by is this: if you owe more than you make in 1 whole year (excluding your primary mortgage and student loans), then you are essentially bankrupt.
Go back to step 1 and be truthful with yourself. If you got into this debt yourself, you should be truthful enough to pay off this debt that is rightfully yours. Life is full of decisions and you have to make the decision between doing what is easy versus doing what is right.
How long will it take to pay off the debts?
It might seem at first to be an insurmountable task but little by little, month by month, year by year, you will start to see your debt decrease. You will see that you've paid off one account; then two; then three. And when you least expect it, you will be debt free before you know it and you would've learned the value of hard work and the value of being truthful with yourself.