Take Control of Your Finances — Today!

Yes, you can take control of your finances. No matter how out of control your debt has spiraled, or how high your interest rates are, or how much you still owe on your school loans. It IS possible. But you have to take the first step and actually do something about it.

The personal finance community on the big ol’ Interwebs is a great place to find other people in your shoes. Or discover inspirational stories about people who took second (or third) jobs in order to pay off their debt as quickly as possible.

To me, there’s no such thing as good debt — you either owe money, or you don’t. While some debt may be beneficial to a point — if you’re trying to build your credit history or you’re financing a car (new or used) to get you to and from your job — in the end, it’s still debt. And paying it off can be the most infinitely satisfying thing in the world. I know in the past I’ve had a few instances where I’ve racked up a few thousand in consumer debt on my credit cards due to unforeseen circumstances, and I know the satisfaction that comes with zeroing out the balance.

That being said, the longer you put off getting a handle on your debt, the worse it will be — but it’s never too late. Feeling lost about how to get the ball rolling? Whether your debt is in the hundreds or the hundreds of thousands, there are certain steps you need to follow in order to start your trip down the road to financial freedom.

Tally Up Your Debt

It’s best to get the scary stuff over with first, right? Instead of thinking, “Oh, I only owe $5,000 on my Chase credit card and $20,000 on my deferred school loans,” add it all up to get that great, big number. If seeing a total debt load of $80,000 (or whatever your total is) doesn’t motivate you to eliminate debt, almost nothing else will. Then use that number every time you think about how much debt you’re in.

For my husband and I, we have no consumer debt. But we do have a car financed at 0% for another four years and 29 years left on our 30-year mortgage at 5%. Knowing those big numbers are still out there keeps me motivated to make extra payments when possible and stay away from accruing any consumer debt.

Figure Out Where the Money Goes & Act Accordingly

How did you get into that much debt to begin with? Car, school and mortgage loans are pretty self-explanatory, but what about all the discretionary spending you do on a day-to-day basis? If you don’t have a checkbook where you record your transactions, keep a personal spending log for a month, writing down everything you spend money on. Either whip up a spreadsheet of your own or use finance-tracking sites such as Mint.com to get a breakdown of where the money has been going. If you’re spending $20 a day on food, $5 on Starbucks coffee and $10 on lottery tickets, you know what to do — cut down on these purchases, if not eliminate them completely.

Set Up a Budget

This is an alien concept to some people, but it’s the best way to track your spending and stay within your financial limits moving forward. Total up your net income and then outline your monthly expenses, such as rent/mortgage payments, utility costs, credit card payments and grocery spending. Subtract that from your net income. What’s left is the money you probably spend like water throughout the month. Instead of leaving it there, ripe for the pickings, set up an automatic withdrawal to suck it into a savings account, or allocate it for additional debt repayment.

Most importantly, do not add to your debt! If you don’t have the cash on hand for that purchase, don’t make it. Instead, put a line in your budget and save up for that item. It’s much more satisfying to pay in cash, trust me.

Begin an Emergency Fund & Start Snowballing

I put these two together because I’m a strong believer in the need for an emergency fund, even if it means you’ll be putting less money toward your debt for a short while. If you already have an emergency fund with a few thousand dollars in it, count yourself as prepared and move on to the debt snowball. But if not, divert some of the money earmarked for paying off your debt to the EF until you’ve got a good amount in there.

For your debt snowball, you can do it one of two ways: pay off the balances in order from smallest to largest, or pay off the debt with the highest interest rate. While you might get more satisfaction from paying off smaller debts first, I like to go with the highest interest rate version. As you watch that total debt number begin spiraling downward, you’ll see how satisfying it is to get your finances under control.

Being completely debt-free may not be completely attainable — especially when it comes to mortgages — but you can lessen the burden and get a better grip on your finances.