12 Steps to getting out of debt

Dec 10, 2009 at 4:38 p.m. ET

We can get into debt for any number of reasons -- unemployment, emergencies, those new red heels-- but there's absolutely no reason not to get out of it. Put an end to the guilt, stress, unpleasant phone calls and red-stamped letters by devoting the next 12 months to getting out of debt. This is your year to get back in the black. Here's some financial advice to get you started.

Woman making budget

Create a budget

Make a list of all your monthly expenses, setting aside some discretionary spending money for the emergency cab ride or unexpected birthday dinner. Compare this budget to your monthly income and cut where needed. Stick to the budget.

My Career
  1. Make a plan: Create a budget and stick to it.
  2. Don't avoid the problem – confront it. Take the time to organize your bills and speak with your creditors. You'll save your credit standing, and know the right steps to take.
  3. Start with the highest-rate interest, and pay that off first, then attack the lower-rate cards.
  4. Cash carry. Don't add to your debt. Try to pay for everything with cash whenever possible.
  5. Work it. We all work hard – but if you are not making ends meet, consider additional sources of income.

Get your debt in order

Open all those envelopes you've been shoving away and take a look at the red numbers. Add everything up and figure out exactly where you stand.

Chat with your creditors

Talking to your creditors can work to your advantage. Many will work out payment plans or negotiate interest rates. Do this early in the debt management process because, once debt collection agencies get involved, things can get nasty.

Attack credit card debt

Pay off credit cards with the highest interest rates first and work down to the lower-interest ones. Also consider transferring your debt to the lowest-interest card you can find.

Cash out

Pay for everything in cash and avoid using your credit cards. This will keep you out of getting into more debt because you'll be spending only the money you have.

Pay attention to your spending

Keep a list or spreadsheet of your spending and ATM withdrawals to make sure that you are sticking with your budget. Websites such as Mint.com can monitor your spending for you and send you alerts when you stray off budget.

Cut spending

Start living the life you can afford -- because you've been living another one if you're in debt. Change big things -- for instance, move to a cheaper apartment or cancel upcoming vacations. Scale back on little daily expenses, too. Ditch fancy coffee and learn to love the poor-gal's mocha—instant hot chocolate and coffee mixed together. Yum!

Get extra work

One paycheck might not be enough to pay off your debt quickly. Consider taking a part-time job or some freelance work to bring in some extra bucks.

Return anything with tags on it

Got a closet full of clothes that have never been worn? Return whatever you can. Even without the receipt, many stores can look up the transaction and will offer a refund. Just remember: You're in the store to return only. Don't respend the money immediately.

Sell stuff

You'd be surprised at what sells online. Put anything you're willing to part with on a site like eBay.com and see if offers come in. Any money you make off of these sales has to go directly toward your debt. Do not pass go. Do not click on Gap.com to spend $200.

Gifts of cash

It may be tacky, but talk to your friends and family about your financial situation. Explain that the best gift they could give you is help toward achieving your goal of debt freedom. This might mean your best friend invites you over for margaritas and nachos instead of out for happy hour or that your parents cut you a check for the holidays. Take all the help you can get.

Consult a debt consolidation service

Why go it alone when there are services designed to get people out of debt as quickly and effectively as possible? Be careful when you pick a debt consolidation service -- scams abound. Ask around for a recommendation to a reputable organization.

Black is this year's black. So take our financial advice: Get on trend by getting out of debt.