It takes commitment and consistency, but the rewards are worth it—both financially and emotionally. People do it every day, and you can too. Here are 10 smart steps for tackling your debt.
Learn More About the Rewards of Getting Out of Debt
- Assess Your Debt—Understanding how much debt you’ve accumulated is the first step toward reducing it. Use our Debt Checker Calculator to determine the total amount of your debt. It can be difficult to confront that total, but it’s critical that you do.
- Set Your Goals—Set a big goal. Pay off your debt in three years and then break this goal into a series of smaller ones that will help you reach the finish line. Use our Income and Expense Cash Flow Worksheet (PDF – 120KB) to help get you there. You can even get your loved ones to participate and to motivate each other until you reach your goal.
- Create Your Plan—Put the plan for reaching your goal on paper. The Debt-to-Income Ratio Worksheet and Debt Goal Worksheet may help you set targets for monthly expenses such as utilities, groceries, medical costs, household needs, and transportation. Set realistic targets and then try to spend even less. Make hard decisions about how to squeeze more of what you earn from your budget to pay off your debt. Don’t forget to budget for the unexpected, such as replacing a broken hot water heater or emergency medical treatment.
- Track Your Spending—Using the plan you’ve developed, track your spending carefully so you can look for additional ways to save. The more money you can apply to your debt each month, the sooner you should be out of debt.
- Curb Your Spending—Freeze unnecessary spending while you assess the problem and make plans to eliminate debt. Cutting spending can come in many forms. It may mean passing on buying big-ticket items, or it may mean bringing lunch to work or school rather than eating out every day.
- Pay Your Most Expensive Debts First—Interest can add up quickly on debts of any size. Be sure to focus on paying off the ones with the highest rates.
- Understand Interest and Late Fees—Know your interest rates and what the late fees are on all of your debts. Avoid late fees to ensure they’re not adding to your debt, and explore options for lower interest rates. If you can’t make a payment, call the banks or companies you owe and talk with them about your situation. In Malaysia, if you are having problems managing and controlling your debt, you can seek free counselling and debt management programme from Agensi Kaunseling dan Pengurusan Kredit (AKPK) (also known as the Credit Counselling and Debt Management Agency). You can reach them at the toll free number, 1800-88-2575. If you don’t understand or aren’t familiar with a debt term, you can refer to our online glossary for help.
- Pay More Than the Minimum—Understand how paying more than the minimum can be a critical step in reaching your goals. This is particularly true for credit cards, though it may also be useful for paying other loans, such as those used to buy furniture, appliances, or electronics.
- Reward Success—Commit to achieving your goal and figure out what’s going to keep you motivated to stay on track. Consider sharing your goal with someone and ask them to be your “Debt Coach” then ask him or her to help “keep you honest” by checking in on a regular basis to see how you’re doing.
- Be Patient—It probably took you time to get into debt, so acknowledge that you’re not going to get out overnight. Keep yourself motivated. And remember, debt elimination will change your outlook on life. It’s worth the hard work.