Want to experience the joys and blessings of a debt-free life? Wouldn't it be nice to be free from the burden and stress from owing money to others? Here's how to get rid of all that debt! 

Ok, you've got some debt and have decided to become debt free. Good. So what is the miracle solution? Sadly, there isn't one. But, with a little determination and a few smart adjustments to your finances, you'll be on your way. 

Becoming debt-free takes will power and discipline. If you have these two things, becoming debt free shouldn't be too hard. People tell me that they've "dug" themselves into debt. That means that they will have to "climb" back out. The deeper you've dug, the further you will have to climb to get out. Don't worry though, you can do it!

1. Steps to becoming debt free

2. Tools that may help

3. No surplus to pay debts with?

Steps to becoming debt free:

1. Gather Debts: Knowledge is power (actually, application of knowledge is power). Get all of your debts together and write them down. Then, total the balances to see your total debt. A mortgage should be last on the list because of the tax advantages gained on the interest payments. Sometimes, it is better to pay the minimum on a mortgage instead of paying it off quickly. To explain this in detail, I will write a new article soon. I suggest making a table such as this:
   

2. Prioritize Debts: We need to prioritize our bills. Pay off the highest interest rate debts first. Number these in order of interest rate priority. Interest (except for on mortgages) is your worst enemy! For instance, XYZ credit card has a $4,000 balance and the interest rate is 16%. The minimum required payment for many cards is 2% ($80) of the balance. If you pay only the minumum, you'll virtually never pay it off! Even after 10 years, you would have paid $6,618.79 and still owe $1,735.68! All of that for $4,000 of debt!

3. Calculate Surplus: Now it's time to figure out how much you can afford to spend each month towards paying off your debts. A budget can greatly help in calculating this. We need to know how much money you have left over after paying all bills. You should also put money aside for upcoming bills that are infrequent or unexpected. If you don't have a surplus to use, click here. Otherwise, take the money you have left over and put this toward paying off your highest interest rate debt. If possible, cut down on costs such as leisure and entertainment to pay off the debts even faster. Do this until it is completely paid off. Whew! Don't you feel better now? Now let's do the same thing with the next debt on our priority list.

4. Keep It Up: Congratulations! Assuming you've done all this and are now debt free, don't fall back into the trap. Stay disciplined and don't fall back into your old spending habits.
   

Be sure to read the next section, "Tools that may help." Once you become debt free, you should read "How to Stay Debt Free."

Tools that may help

1. Call your creditors: Believe it or not, you can call your credit card companies and ask them to lower your interest rates. They don't have to do it, but they often will in an attempt to keep your business. I've seen interest rates drop from 29% to 7%. Wow! That can make an incredible difference. When counseling one family, we were able to reduce their monthly payments by about $400 and save them probably close to $100,000 of interest over the years. Just call the toll free number on the back of your card and talk to customer service.
2. Transfer balances: If you can't bargain down your interest rates, consider moving money from one card to another. To win your business, some cards will offer very low interest rates. Just be sure to read the fine print. You want a rate that will stick, not one that will jump up again in 30 days.
3. Consolidation: It may be helpful to consolidate all your bills onto one. Do this only if you are able to get a lower interest rate with the same or better terms than you already have. Just make sure you continue to pay above the minimum to eliminate the debt as soon as possible.
4. Home Equity Loan / Second Mortgage: If you own your own home, this may be a good option to consider. Both of these allow you to borrow against the equity (home value - balanced owed) you have built up. These can have favorable interest rates and you are usually able to write off the interest for taxes. Be sure to consult an advisor before making a final decision.

No Surplus to pay debts with?

Obviously, to get out of debt, you must be making more money than you are spending. If you aren't, you have 2 options: make more money or spend less. Since most of us can't increase our incomes on demand, most of us will need to learn to spend less. The easiest thing to do is cut down on "miscellaneous" expenses. Things like entertainment, dining out, etc. Maybe it's time to cook a few more meals at home. Maybe you need to sell that fancy sportscar for something more reasonable and practical. This doesn't have to be torture. Try to enjoy a change in lifestyle. Trust me, it's worth the effort!