6 Simple Steps to Save Yourself from Drowning in Debt

hand drowning
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Debt is one of the biggest drains on your financial success and happiness.

As long as you have outstanding debt, your money is tied up in a losing game where you're penalized for every extra month that you play.

No matter the size of your current debt load, here are six steps you can take to pay down your balances, stop yourself from taking on more debt, and reach the elusive goal of complete debt freedom -- once and for all.

1. Come Up With a Repayment Plan

It's time to stop making only the minimum payments. Those days are over. It's time to develop a strategy that will get your debt paid down as soon as possible.

A popular plan is the stacking method, where you pay as much as you can toward the balance with the highest interest until that account is paid in full. Then you move down the line to the next-highest balance, and so forth. You're tackling the highest-interest loan first, since that's the most expensive debt on your books. Continue making minimum payments on the other accounts.

An alternate popular plan is the snowball method, where you pay as much as possible toward the debt with the lowest balance -– regardless of its interest rate. This gives you the psychological win of crossing one of your loans off your list, which motivates you to stay on track. The more small wins you accumulate, the more likely you are to continue tackling your debt. (Read more on debt snowball vs. debt stacking.)

2. Set a Budget

If you don't have a budget in place, now's the time to create one. It will help you ensure you have the funds available to work on your repayment plan, and it will keep your spending in check so you don't feel compelled to incur any additional debt.

If you're a detail-oriented person, you can track your spending (either via paper-and-pencil, or by linking your accounts to a free tracking service such as Mint.com). This allows you to see how much you're spending in various categories.

Alternately, if you're looking for an easy way to budget, you could simply skim your savings off the top -– and then force yourself to live on whatever is left over.

3. Reduce Your Expenses

If you've gotten into trouble because you've been living outside your means, it's time to get real about the kind of lifestyle you can truly afford. Maybe you need to stop dining out so much, or maybe you need to downsize to a smaller home.

If you're already living a fairly modest life, you may want to consider temporarily reducing (or cutting out) an entire spending category. This could be as simple as cutting cable TV, canceling your magazine subscriptions or eliminating soda and candy from your life.

Or it might mean taking radical measures, such as living with a roommate, taking public transit everywhere, getting rid of your cellphone,or downgrading from a smartphone to a "dumb" phone (without a data plan).

4. Stop Adding to Your Debt

You'll never get anywhere if you're taking in water at the same time you're trying to bail out the ship. Put your credit cards in a drawer, cut them up, freeze them in slab of ice. Do whatever is necessary to ensure you don't add any more to your outstanding balances.

5. Build Your Savings

While you want to be aggressive about paying down your debt, make sure you're also setting aside enough money each month to build up some savings. We often get into debt because we're faced with a large, unexpected expense we weren't prepared to handle. Having a reserve of emergency savings to pull from can help you stay out of trouble in the future.

If you're battling high-interest debt, start by building an emergency fund of $1,000. This will tide you through most unexpected bills that come your way. Once you're done, focus on tackling your debt.

6. Keep Your Goals in Sight

Keep your positive momentum moving forward, and your motivation up, by reminding yourself regularly of what you're trying to achieve. Freeing yourself from debt will give you the ability to pursue new goals and rid yourself of the stress of being financially handcuffed.

Learn from the mistakes you've made in the past, do everything you can in the present to rectify them, and keep your eyes on the prize. Paying down your debt will be one of the best things you ever do for yourself.

Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns six rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for revolutionaries who understand that they can afford anything -- just not everything. Visit Afford Anything to learn how to shatter limits and live life on your own terms.
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