In most cases, debt is caused by bad spending habits, not bad business practices. Remember, there are forms of good debt. Fortunately, bad habits can be changed or broken with the right perspective and frame of mind. The worst thing you can do with your debt is nothing. These problems will not go away on their own. With a little education and a lot of action, you can reduce your debt in no time. Here are some steps you can take to right your financial ship and get out of debt:
1. Identify the Problem: The first step in solving any problem is to know what it is. If you are in debt, you may have been running from the problem for some time. Eventually you need to draw a line in the sand and see what is going on. It won’t be easy and you may need to make some difficult changes, but it needs to start somewhere. Make a list of all of your business and personal expenses. Everything that you spend money on should be included. If you are having trouble with your list, take a look on your credit report. The problem with only referencing your credit is that it will only show items that report to credit bureaus. There are many expenses that aren’t on the credit that can add to your debt. After you have your expenses accounted for, list the interest rates and balances. This will give you the big picture of your finances. It may take some time to get all this information down, but it is a necessary step if you want to get out of debt.
2. Evaluate the Financial Picture: There are two ways you can get out of debt: increase your income or reduce your expenses. What you will find is that they both work hand and hand. If you are in a sales based business such as real estate, the possibilities are endless. There is no cap on what you can make. Start by taking an honest look. From there, you need to look at everything on your expense report. Is there a cheaper alternative? Do you really need this expense? What is the expense doing for your income? If you haven’t looked at your debt in years, you may be doing things a certain way out of habit. You probably used the same oil company because you didn’t want to shop around. The same can be said for your marketing company, lawn care and property manager. If you have credit cards, look at the interest rates and see if there is a way to lower your payment. A couple dollars here and here on all your expenses can really make a difference every month.
3. Make a Plan: Knowing what you should do and actually doing it are two different things. It most likely took years to get into financial trouble, so it is unrealistic to think it will only take months to get out. Make a plan of how you are going to lower your debt. Go so far as to write out each monthly payment you are going to make and when. Get a payment calendar for the next six months. Start a list of creditors you have called in an attempt to transfer balances or reduce debt. Every time you get income, allocate a portion of it to your debt. Once you start to see some progress, it will serve as motivation to do more. If you don’t have a plan, you will find yourself veering off track.
4. Remember How You Got Into Trouble: Taking one step forward and two steps back will not get you out of debt. You need to constantly remind yourself of what you want your financial picture to be. Every time you close a few deals and see some success, it can be tempting to fall into bad habits. Take a snapshot of your debt or save a copy of an old credit report as a reminder. Focus on doing little things every day that will help reduce debt. It can be frustrating at times, but little things will make a big impact over time. Don’t run from your current debt picture. By remembering how you got into trouble you will be less likely to get back there.
There is no easy way to get out of debt. Waiting for that one big deal or your business to take off may leave you waiting a very long time. There are many investors and people in business who have had debt problems and came away stronger after the fact. Face your debt problem head on and it can be gone before you know it.
