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How to get out of debt and save money

Updated on June 4, 2009

Step 1: Discover the Size of the Problem

One of the things that people are in serious debt do is ignore it -they don't open the mail which brings the demands for final payment or shows them the 100's of dollars they are spending on credit card interest. They are in denial. You cannot fix any problem that you are in denial over. So if your debt is a a problem to you or your family you need to face it and see the size of the problem.You need to learn how to save money - not spend it!

Find out the size of your debt:

  • over due bills balances owing, payment terms, interest rates
  • credit cards, store cards and similar - balances owing, minimum payments interest rates.
  • car loans
  • Hire Purchase payments
  • house mortgage
  • loans from friends and family

So this is the size of problem. Start a spreadsheet or piece of paper - for each loan take a line and note:

  • the total debt
  • the interest rate
  • minimum payment terms and date e.g. 20th month

Step 2: Decide On your Goal

The total figure you came up with might be a little scary! Getting out of debt sounds like a good idea - but does that mean that all debt is bad? Not all debt is bad - borrowing to buying assets can be a good thing - you can out ahead financially if the asset you buy increases in value by more than the interest you pay on the loans.

Unfortunatley a lot of people are confused as to what is an asset - an asset is something that makes money. A rental property or a share portfolio are assets - they make money. A car, a widescreen TV, a gorgeous pair of Italian shoes are not assets - they not only don't make money but their value commonly drops significantly as soon as you buy them, worse some of them will cost you money to keep - such as the car. So do you want to be debt free? Consumer debt free? Once you are free of consumer debt your options to save and invest are wide open.

Now prioritise your debts:

Top Priority Debts

Those that by not paying you are endangering your basic quality of life and your credit rating:

  • your rent
  • your utilities including power, telephone, water
  • other utilities: broadband, pay TV,
  • any bill that is stamped final demand or which has been forwarded to a debt collection agency

Lower Priority Debts

The other debts probably are in the second priority pile. These may include:

  • Loans from families and friends
  • credit card debt
  • the mortgage on your home

The first group has to be paid and now. Contact your creditors, talk to them, agree a payment schedule and STICK TO IT.

Cancel the utilities that you don't really need: pay TV, broadband or downsize to the cheapest package. Check the fine print, you don't want to be hit with too many penalties for cancelling, but at the end of the day paying a termination fee will probably less than another 3 months of payments.

The lower priority debts. Most people seem to get into debt with credit cards, especially consumer debt. In general pay off the debts that you are paying the highest interest rate on first. However if you would like some instant gratification, take on some of the smaller outstanding amounts first so you can see clear progress.

Step 4: Analyse your Spending

You weren't born in debt! How did you get into debt - was in an unfortunate event: marriage split, loss of a job, illness. or has it just developed slowly over the months and years? If its the latter the issue is clearly that you are spending more than you earn. If your debt is the result of a one-off event then you still need to find some cash to pay of your debts and get your self back on a financially secure footing.

Buy a small notebook and carry it around for a week or 2 - write down everything you spend - everything, the paper, the milk, include anything you put on a credit or debit card too. It's OK I'm not saying do it for ever - just do it for a typical 2 week period- not when you're on holiday, not just before Christmas, just a typical 2 week period. Ideally get everyone in the household to do - or at least those that are contributing income! Now analyse your spending: you can use software or a spreadsheet or pen and paper.

Allocate your spending to some basic categories like:

  • groceries
  • lunch out
  • takeaways
  • cloths
  • vehicle running expenses
  • public transport
  • hair dresser
  • coffee out
  • gym fees

Do you see a pattern - are you shocked at how much your take-away coffees are costing? Had you not realised what you were spending on lunch - whatever it is I guarantee you will find a number of items which shock you.

Step 5 Decide on an Action Plan

Reduce your regular spending

Budgeting is a bit like dieting - if you decide that from now on you are spending nothing on clothes, lunches, shoes, clothes or whatever else it is that you spend money on - it will last a week or maybe a month and then you'll have a blow out. Budgeting, just like dieting, has to be a lifestyle change, and it has to sustainable. If you live to own designer clothes then that's OK, but maybe you can limit your outfits to 3 a season rather than 5? Budgeting is the key to that age old question: how to get out of debt. If you love to go out on the town and drink and party - can you limit it to twice a month, rather than once a week? Yes you are going to have to make some changes but think about your goals and dreams not the spending reductions now!

Sell things

Can you sell stuff to pay of debt? EBay and other auction sites are wonderful places to get rid of your unwanted clothing, the glasses given as a present 5 years ago which you've never used. The toys the kids have grown out of. You not only make some cash you get to de-clutter your life as well!

Can you sell your car? It's not just the car loan that's costing you money but the insurance, taxes, registration, services and petrol! Can you reduce from a 3 car household to a 2 car household or a 2 car household to a 1 car household plus bike or scooter? You not only save money - you save the planet as well? Even if you need to keep the cars you have look at selling them paying off the loan and buying a car you can pay cash for - no more car loan ever that sounds good doesn't it?

Substitute cheaper items

Can you move to a cheaper apartment, if you rent?

Can you save at the supermarket by going to a cheaper one? Can you buy no-name brand items on the things that don't matter i.e. they all taste /act the same e.g. butter, sugar, flour, toothpaste, shampoo, toilet paper. If you like luxury foods then buy them on special, if you have the space and the cash buy items you use all the time in bulk if its cheaper. Take a calculator with you to do the sums!

Can you buy books or clothes at a second hand shop rather than new - you will probably find stuff you would never find new anyway!

Get a cheaper credit card.

Yes I am saying consider applying for another credit card! I am NOT saying use it to buy stuff on though! One of the reasons people have trouble getting out of credit card debt is the punative rates of interest charged and the low minimum payments. So increasing your payments will certainly help - but try to reduce your interest bill will help even more!

One of the reasons to protect your credit rating is that if you are still a good risk you may be able to find a new card which will allow you to transfer an outstanding balance for a low or reduced interest rate. Say you believe you can pay your card debt off in 6 months but you are currently paying 20% interest, if you can find a 0% or 5% credit transfer deal take it - and focus on reducing the debt to zero in the time frame. Whether you cut up the card or not depends on whether you can trust yourself not to get into debt again with it. Smart people don't fund their lifestyle with credit card debt - they use a credit card to reduce bank fees, earn frequent flyer points or other awards and pay it off when due - banks hate those who do that!

Extra Income

Can you go for a promotion at work? A new job? A second job? Even if for a short period of time this might be worth it - though check how much you will nett out of it after work expenses, commuting, and taxes.

Get the teenagers out working a paper-run or in a fast-food outlet - its a good way for them to learn about real-life anyway!

I said earlier that budgeting is like dieting. Its actually a lot easier than dieting - with dieting you can go for weeks without seeing any results, you give up for a weekend and all the weight comes back on! Budgeting isn't like that though - I guarantee that if you reduce your debt you will start saving. Its a snowball effect, as you reduce debt you reduce the interest you are paying which allows you more spare cash to reduce more debt.

Step 6 Putting it All Together

So now you have a list of debts A some cash from selling things Extra income coming in from you extra job Less money being spent on the necessities of life.

Now go back to you list of debts. Start with your highest priority one, how long will it take to clear it with the extra cash you have? Now once you've cleared that one, take the extra cash, plus the re-payments you were making on the initial debt (no longer needed as you cleared it ) and apply it to the next item on the list as and so on. It really does work.

Remember though no more getting into debt for consumer items otherwise you will put yourself back at the start again! Remember that getting out of debt is just a tool - the real aim is to take control of your life and fulfil your goals and dreams. I've added in some photos that inspire me -what inspires you?


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    • profile image

      Binish James 

      7 years ago

      I am trying to do these steps

    • Camera Prices profile image

      Camera Prices 

      9 years ago from Toronto, ON

      A goal and a plan are two of the pillars of debt freedom. without either you don't stand a chance. Of course, admitting you've got a problem in the first place is a good idea too.

    • profile image

      Debt Management Companies UK 

      9 years ago

      Thanks for the advice Lissie on financial management. Very well written.

    • profile image

      Pay off Debts 

      9 years ago

      Great these tips are going to help us in strategic planning for coming out of debt and save a few extra dollars for the future.

    • agungssuleiman profile image

      Snapshot at Siem Riep 

      9 years ago from Cambodja

      Excellent advice on how to manage our debt by setting up priorities.Thanks for your tips.Cheers

    • profile image


      9 years ago

      You know, credit card debt that has been building up and overwhelming is not always because people live above their means, it sometimes is related to taking on parents debts because they passed away and left it to you to pay when you weren't expecting it. Who knew we would have to save not only for us, but for our parents too!!! We had a mortgage and manageble debt before their debt, then wham!!

    • kathygirl22 profile image


      9 years ago

      Great info...thanks for taking the time to create this hub. All kinds of nooks and crannies I never thought where nasty debt could hide. Thanks again

    • J  Rosewater profile image

      J Rosewater 

      9 years ago from Australia

      WE have a really old car (we're a 1-car family) that gets serviced regularly, and is owned outright, without a loan. This arrangement has saved us literally thousands compared to our neighbours. Our children use public transport and they walk places. We save and invest a little, and bad financial news doesn't scare us so much.

    • WilfordSy profile image


      9 years ago from The Bahamas

      Thanks for the advice on financial management. Very well written. :)

    • profile image


      9 years ago

      i like the substitution idea. Fresh food is the only thing that should not have any substitution.

    • profile image


      9 years ago from Clearwater, Florida

      This is a very thorough piece on debt. For anyone serious about getting out of debt (or in denial regards their debt) this is a must read.

    • christophallen profile image


      10 years ago

      Excellent advice. I recently got out of debt myself and it is a great feeling. Being debt-free brings with it an amazing amount of freedom.

    • profile image 

      10 years ago

      Clear and concise post... thanks

    • profile image

      Kim Garcia 

      10 years ago

      Very Good Hub Lissie. Some great step by step rescue tips. Peace n' Blessings! ~ K

    • profile image


      10 years ago

      Great, Well written article.

    • profile image


      10 years ago

      Such good tips, thanks for sharing

    • MakinBacon profile image


      10 years ago from Louisville Area

      It's amazing how easy it is to get into debt, and how complicated and time consuming to get out of debt.

      That's why I've been out of debt for years. And in difficult economic times it's much easier to live without debt and the worries that come with it.

      But if you're in debt, these are great tips to chip away at the problem and manage your way out of it.

    • profile image


      10 years ago

      Great article! My wife and I recently were able to get credit card debt free, and have decided not to use cards at all. It's surprising how much we've discovered we used them.

    • profile image

      Bank Foreclosures 

      10 years ago


      This is really an excellent article. You should be considered for a cabinet position... and quickly before the powers that be make one more stupid move that will put our nation - and future genrations - deeper in debt than we already are. Keep up the great work!

    • profile image


      10 years ago

      Thanks for a great hub ,Lissie.You can put a complex matter in a way that most people can understand.

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      10 years ago from New Zealand

      Thanks for visiting Pam - how did this hub get dredged up - I wrote it before the crises!

    • profile image


      10 years ago

      Good stuff Lissie. Thanks for laying it all out in plain English. :o)

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      10 years ago from New Zealand

      LOL lbtrader - its been around for 15 months -you'd think they would have read it by now!

    • lbtrader profile image


      10 years ago from Canada

      You really need to send this hub to all of the leading financiers and political learders ASAP....i think it may be too late already.

    • RGraf profile image

      Rebecca Graf 

      10 years ago from Wisconsin

      Great advice. People don't stop and think that there are ways to pull yourself out, if you only step back and think outside the box we've put ourselves into.

    • Karen Wardle profile image

      Karen Wardle 

      11 years ago from Central Coast New South Wales Australia

      Hi Lissie. Like you I am from Australia too! I have only just joined in the last few hours and just love your hubs. The problem though is that I keep getting distracted. I tell myself I will just 'read one more' when I should be writing my own :)

      Maybe I should just put it down to 'research'. Thanks for all of the great advice

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      Darlene - my symathies but with most of life's big issues: you have to get past the denial stage to actually deal with it. One thing with debt - ignoring it never makes it better :-(

    • DarleneMarie profile image


      11 years ago from USA

      Great advice Lissie for reducing debt! Many are so deep they do not even know where to start. Your suggestions give them a starting point and where to go from there. GREAT HUB!

    • profile image

      Steven Ahmad 

      11 years ago from NYC

      This is a terrific hub. Thumbs up!

    • abalinga profile image


      11 years ago from South Australia

      Hi Lissie,

      Excellent article. Thanks.

      I see the problem has become so great that they are talking about teaching kids in primary classes about savings and budgeting instead of leaving it till high school. I think its more to do with a generation that is increasingly retiring to government support instead of being self funded. Besides the pandemic of depression is probably linked to the debt situation as well as many other factors.

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      Tessali I am lucky enough to live in a country which doesn't make sick people pay for their health costs - I fee terribly sorry for anyone with a long-term illness in the US. Keep on going girl you can do it!

    • Tessali profile image


      11 years ago from United States

      Most excellent hub! This really puts things in perspective. I've followed this as you have outlined and have been working on getting myself out of debt. Unfortunately for me it has been illness over a long period of time. Medical bills add up and eat up a lot of my income. So I work hard at lowering debt all the time. You've done a great job and clearly writing down all the steps. This should help a lot of people.

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      All good ideas Caregiver - you have to find what works for you and then stick with it!

    • Caregiver-007 profile image

      Margaret Hampton 

      11 years ago from Florida

      Great hub on an important subject, Lissie. Years ago, I found that it helped greatly to write every little expenditure down in a tiny spiral notebook in my purse - even a postcard or postage stamp - when I was traveling in Europe on a student budget.

      Years later, with Quicken I recorded BY CATEGORY every expenditure on credit cards (each as separate account) AND had a cash account, in addition to the checking accounts. Then I could run a pre-programmed (for dummies) "transaction report - by category" to include all accounts and see how much was spent on what. Boy, that helps you identify places where you can cut!

      In a bank years ago, we had a cost-cutting program and included such things as recycling paperclips and rubberbands. Just the "little things." And in a very few months, hundreds of thousands of dollars were saved in just the main office! There are SOOO many little ways to save a little here, a little there with careful attention in the home - WITHOUT feeling a pinch!

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      I hope so Kenny - it's pretty scary how much people owe on credit cards -and they think they ae rich because they have all the toys!

    • Kenny Wordsmith profile image

      Ashok Rajagopalan 

      11 years ago from Chennai

      Excellent advice, Lissie! This will help people to take a step in the right direction.

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      HOpefully dafla - in my country its only really been my generation that has had the debt thing going - my mother could barely get a mortgage without my father co-signing and credit cards didn't exist until the 80's

    • profile image


      11 years ago

      Hi Lissie! Great hub! As you know, I'm a frugal freak, and getting moreso every day. I think there is going to be a big change in this country very soon where finances are concerned. Hopefully, people learned something from all the foreclosures and bankruptcies, and are starting to live more within their means.

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      Thanks for the typo - yes I thought it was seasonally appropriate!

    • retireyoung profile image


      11 years ago from Bali

      This hub will popular when January comes around! Small typo in the first paragraph "denial".

    • Lissie profile imageAUTHOR

      Elisabeth Sowerbutts 

      11 years ago from New Zealand

      I'm pretty sure that's why hubpages put the request in 2 weeks before Xmas!

    • MrMarmalade profile image


      11 years ago from Sydney

      Thank you lissie.

      A good hub and timely. The debts are sure to rise for Christmas.

    • profile image


      11 years ago

      I really liked the Hub.gr8.keep writing.


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