Debt Elimination Plan

Is debt getting you down? Do you want to get out of debt? The first (and most obvious) step would be to stop incurring more debt. That may work if overspending caused your debt difficulties and all it takes is to put away, or cut up, your credit cards until your debt is under control. It may not work if you are a person who likes to spend. You may first need to learn how to recognize and control your spending triggers. If your debt difficulties are serious, learn more about overcoming debt challenges or consider getting help through bankruptcy and alternatives

Keep in mind that debt can be a useful part of your financial plan. Taking on debt allows you have use of things today as long as you agree to pay for them, with interest, over time. The amount of interest you could pay, per item and over a lifetime, is worth figuring out. The choices we make, to spend, or not to spend, add up. To take control of your current and future debt, you need a debt elimination plan. A debt elimination plan is a more focused financial plan. It's relatively easy to set up but can be hard to implement. In the end, however, it's worth the effort.

The Five-Step Plan to Debt Elimination

1. Assess your current situation

Step number one is to examine your current financial situation. Summarize what you own and owe and track what you earn, spend and save. If you haven't already done so, use the following ProsperiGuide resources to help you:
Resources Descriptions
Liabilities: Detailed A comprehensive list of your debts with full details. 
Suggestion: Rank your debts from highest to lowest interest rate. Return to the worksheet later to prioritize which debt to repay first. 
Net Worth Statement A summary of your assets and liabilities.
Current and Future Expenses Detailed tracking of your current expenses. 
Suggestion: Examine your current expenses, looking for opportunities to reduce them. Complete the future expenses column to estimate your financial ''wiggle room'', where you can cut back on spending. 
Income, Expense and Saving Statement A summary of your cash flow: money in and money out.

2. Set debt reduction goals and priorities

Step number two is to list and prioritize your goals. Review ProsperiGuide's Goals and Objectives section. Then revisit the Liabilities: Detailed worksheet, to rank your debts by priority of paying them off. To see this approach in action, read Trevor's story. Once you've prioritized your debts, use the Twelve-Month Debt Reduction Action Plan to identify the steps you will take and to track your progress.

3. Build a timeline

The next step is to develop a debt elimination timeline. To be effective, ensure you have an accurate understanding of your current situation, goals and priorities first and have established which expenses can be cut, to free up money for debt reduction. Use one or more of the following calculators to estimate when each debt will be paid off if you allocate your ''new-found'' money towards debt reduction:

4. Take action

The final step is the hardest: taking action to carry out the plan. The Take Action section of the website will assist you with this step. Use the tips and worksheets found there when implementing your debt elimination plan. Use the Current and Future Expenses worksheet to help you adjust your spending. Look for further opportunities to postpone or eliminate expenses, even for a short period of time or on a small scale. Direct the savings toward debt reduction rather than unnecessary spending.

Keep your emergency fund in a high-interest savings account with easy access. While the suggested amount varies, try to set aside at least three to six months of living expenses.

Set mini-goals and allow yourself small celebrations when you achieve a goal (such as paying off a credit card). This is a good way to keep you motivated and help you stay focused.

5. Monitor and adjust

Repeat these steps whenever a significant change occurs and every time you pay off or take on, debt. Update your current situation, recalculate your debt repayment timelines and adjust your twelve-month debt reduction plan. Continue this process until all of your debts have been paid off.

As you work to get out of debt, justify all new debt. Make a commitment to avoid unnecessary debt. This means planning ahead for large expenses and saving up for them. Called sinking, replacement or depreciation funds, you can have them for everything from home repairs to vacations. Regularly saving small amounts in advance to buy your next vehicle and sticking to a budget, will reduce, or eliminate your future financing costs. 

Focus on saving money and building wealth. Live within your means. Stay on track to eliminate debt and achieve your financial goals.