I’m In Big Financial Trouble - Where Do I Start?

Several months ago, I sat down with my finances and took a good hard look at things. I was in approximately $10,000 of credit card debt spread out over three cards, and that’s not counting my student loans or vehicle loans. I also had no money in savings and - even scarier - I wanted to buy a house within the next two years, even though my finances were screaming “no way!”

It was very intimidating to look at my finances in this way, and it made it clear to me that I needed to make some major changes in my spending and saving habits.

The first thing I did is I made a list of every single thing I had to pay out each month using Microsoft Excel (you might want to use Google Spreadsheets; it’s free and quite useful for tasks like this one). I made four columns: the name of the bill, the amount of the bill, whether it is essential or not (I used “Y,” “N,” and “?” for this one - and I used “Y” for any bills that were loans that I couldn’t just cancel, and I used “N” for non-essential things like my cell phone and Netflix), and if it is a loan, what the percent interest is.

I went through every one that was non-essential and asked myself if I really needed this service or not, or if I could get a reduced plan. I wound up cancelling several services (Netflix; a web hosting service I wasn’t using; World of Warcraft) and reducing several others (a smaller cell phone plan; a reduction in my cable package). In the end, I cut my monthly spending by almost $200, money I could use to help myself get out of debt.

I then went back to my essential bills and looked at the loans carefully. My goals were to reduce or eliminate these while getting some padding in the bank. I decided that my focus should be on paying off any loans that were more than two percent higher than what I could earn with an ING savings account, then I would begin putting a set amount into ING each month and pay off the remaining loans at a rapid rate. I had three credit cards with an interest rate over 10%, so I decided to direct that extra $200 each month into paying those off immediately, starting with the one with the highest rate.

It only took a few months of dedication to this and the balance on my first one vanished, so I was able to remove a bill from my list and dedicate even more to paying off the other credit cards. Thanks to the spreadsheet (and many of the other things suggested at The Simple Dollar), I am now free of credit card debt.

The first step is simply sitting down and being honest with yourself: you’re drowning in debt, but you also have the power to pay it off.