May 23rd, 2006

Debt Free in Seven Steps

By David Weliver

Got debt? You’re not alone. The average American’s credit card balance is over $8,000. In 2001 we paid $50 billion in finance charges, and 1.3 million people declared bankruptcy. Fortunately, you can become debt free. If you’re ready to eliminate your debt once and for all, here are the steps I’m following to reduce my debt. I’ve already cut a total debt of close to $100,000 in half, and I hope to be free and clear of the remaining balances in one to two years.

Preparing to be debt free
I’ve broken down the path to becoming debt free into seven steps. Each one is important and, if followed, should allow you to make some significant progress on becoming debt free no matter how much debt you have or how little you earn. Of course, earning more is always helpful, but we’ll get to that.

There are no complicated calculators or special tricks to becoming debt free––as personal finance guru Dave Ramsey says, it’s 20% knowledge and 80% action. That action is what’s so hard. Getting out of debt is like making any big personal change–losing weight, starting to exercise, or quitting smoking–it is not easy, but the results will change your life.

The seven steps to become debt free

1. Write Down Your Financial Goals — You have to know where you going before you can get there. Often times our debt is the result of short-term thinking. It’s time to think long-term in order to begin to change our short-term habits.
2. Determine How Much Debt You Have — Are you afraid to look at your credit card balances? I’ve been there. But ignoring your debt will not make it go away. It’s time to swallow hard and take stock of just how bad your debt is.
3. Develop Your Debt Management Plan — Your personal debt management plan is your road map to becoming debt free. It can be a long road, and you’ll need this plan to make sure you stay on course when things get treacherous.
4. Negotiate, Eliminate, or Consolidate Debt – Once you have your road map, it’s time to look for shortcuts. Sometimes you find them, sometimes you don’t, but any you do find can get you to your goals faster and save you thousands of dollars.
5. Automate Your Debt Payments — Pilots use autopilot for a reason—it frees them from routine steering to focus on navigation and safety. Ultimately, it’s safer for the plane to fly itself. The same is true for your debt. You’ll make progress faster—and feel better—if your debt payments take care of themselves.
6. Monitor Your Debt Elimination Progress — Just because the plane’s on auto pilot doesn’t mean the pilot is ignoring the sky. He’ll want to avoid a collision or find more favorable winds if they come about. Learn to alter your debt management plan as you go along.
7. Live Debt Free — Once you’re debt free, learn to manage your finances so you never have to face debt again.

Need more debt help?
If you want help with your debt, a professional credit counseling or debt management program may be able to help. First, read my post 10 things you should know about debt management programs.

Related Posts

1. Debt Free Step Three: Your Debt Management Plan
2. Debt Free Step Six: Monitor Your Debt Elimination Progress
3. Debt Free Step Two: How Much Debt Do You Have?
4. Debt Free Step Five: Create Automatic Debt Payments
5. Debt Free Step Seven: Living Debt Free

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11 Responses to “Debt Free in Seven Steps”

1. Money Under 30 | The Courage to Live Debt Free (Debt Free Step 7 of 7) says:

   September 22, 2006 at 1:52 pm

   [...] I hope the seven steps out of debt series was helpful. Check back to Money Under 30’s debt help section for even more advice. The wealth of personal finance knowledge now available on blogs is an incredible asset that wasn’t around when I was making financial mistakes and waking up to the dangers of debt, so take advantage of it, and good luck living debt-free! [...]
2. Money Under 30 | 10 Easy Things to Do Now to Make More Money Later says:

   September 27, 2006 at 9:19 am

   [...] If you can’t get ahead of your debt, you won’t get ahead in life. Make learning to live debt free your number one priority. 8. Think Positive [...]
3. Money Under 30 | Credit Card Balance Transfers: The Art of Moving Debt says:

   October 5, 2006 at 11:20 am

   [...] Think credit card balance transfer is right for you? Start shopping with the following cards. Once you’re on your way to a new low rate, remember to keep applying the seven steps out of debt! Good luck! [...]
4. Money Under 30 | About Money Under 30 says:

   April 9, 2007 at 9:29 am

   [...] Debt Free in Seven Steps Related Articles [...]
5. Money Under 30 | How to Use a Credit Card Responsibly says:

   June 14, 2007 at 11:59 am

   [...] Maybe you just got your first credit card, or are retraining yourself to use credit responsibly after beating down some debt. [...]
6. What’s Coming Up at Money Under 30 — Money Under 30 says:

   June 4, 2008 at 9:50 am

   [...] done a good serial post since more than two years ago when I wrote the seven-part post: Debt Free in Seven Steps. The first two serial posts will [...]
7. Credit Card Delinquencies Rising: How To Avoid Falling Behind — Money Under 30 says:

   July 7, 2008 at 5:57 pm

   [...] Debt Free in Seven Steps [...]
8. Suze Orman is a Buzzkill — Money Under 30 says:

   August 18, 2008 at 9:21 am

   [...] people got into it before they knew better. Take full responsibility for your credit card debt, make a plan to get out, make sacrifices to get there, and make a plan to avoid going into any more debt, but don’t [...]
9. Suze Orman is a Buzzkill — Money Under 30 says:

   August 18, 2008 at 9:21 am

   [...] people got into it before they knew better. Take full responsibility for your credit card debt, make a plan to get out, make sacrifices to get there, and make a plan to avoid going into any more debt, but don’t [...]
10. Murder Your Debt…Now!!! — Money Under 30 says:

    October 9, 2008 at 5:11 pm

    [...] things you want rather than on killing debt. You need a plan. I wrote a series a while back called Debt Free in Seven Steps, which included a post on making a debt plan.I also highly recommend this free snowball calculator [...]
11. When is it Time to Move from Saving to Investing? - Personal Finance for the Young and Ambitious says:

    October 29, 2008 at 9:40 am

    [...] you need a hand, our seven steps out of debt series can [...]