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Debt is a big problem. While from the point of view of the financial services, banks, and speculators, the debt and credit systems work well for the economy, debt can be a disaster at an individual level. If you’re in deep water with debt and feeling out of control, this advice might help you pay your debts down and, if you’re smart, get out of debt altogether so you can save.

Before this goes any further, it’s important that you realize a simple, brutal fact: if your total debts are higher than your total annual income, you need professional advice to avoid bankruptcy. If you don’t see a way to increase your income soon, get help from a reputable public advisory service as soon as possible.

However, if your debts weigh heavy on your shoulders, but you still earn more than you owe, this simple strategy should work to free yourself of debt and live without financial anxiety if you stick to it. Ever tried to lose weight? There’s only one formula that works however you dress it up. Burn more calories than you consume. Likewise, with debt, first you have to stop spending more than you can afford. And then you have to pay more toward your debts than you are obliged to by your creditors.

You’ll need a plan. List everyone you owe money to, including your mortgage lender, credit card companies, store cards, mobile telephone contract provider, utilities, local stores, and even the aged aunt who lent you a few bucks last week. List everything and everyone. Now order that list so that the most expensive debts are at the top and the least at the bottom. 

Now you know how much you owe, to whom, and which debts are costing you most. If you found that easy, now comes the painful part. You need to draw up another list of all your expenses. Again, include everything, however small. Think about your mortgage payments, credit and store cards, groceries, clothes, college fees, memberships, subscriptions, TV and dog licenses, entertainment, fuel, anything and everything.

Now you have two lists: one lists what you owe, the other what you spend. You already know how much you earn. Now you must do two simple calculations.

First, add up the total cost of your minimum monthly debt repayments. Then deduct what you spend from what you earn. It should be no surprise to discover that you spend more than you earn. That’s why you’re in debt. If you’d lived within your means, you wouldn’t be in this mess. But now you must do more than that. You must cut down your expenses so you spend less than you earn. Cut out every expense that you don’t need to survive. Be ruthless about this. The only way to rescue yourself from past excess is present and future austerity.

Now make your plan. Go back to the list of creditors, ordered according to the most expensive first. The rest is simple. Your most expensive debt, the debt with the highest interest and the shortest term, should be at the top. Your new, austere spending regime means you now have more money coming in each month than you’ll spend. Pay the difference, all of it, into that debt at the top of the list. Continue to pay the minimum on all your other debts.

Keep doing that until you’ve cleared the debt at the top, then move on to the next one, and just keep going. This way, you will clear all your debts in the shortest time. Remember, if you’re in difficulty with debt, it probably took you years to get there and it will take you years to get back into a state of financial health.

But if you’re struggling with debt, you have no choice other than to deal with it, or else you’ll see your situation worsen until you end up in court or have to file for bankruptcy. It’s never too late to fix your debt problem, hard as it is to renounce your luxuries. But keeping your head stuck in the sand is a sure-fire way to make a bad situation worse.

Remember, the longer you leave it, the worse it will become. The best time to work on clearing your debts is now. So grab a pen and a pencil or bring up a spreadsheet on your favorite device, and get started on your plan. 

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