Debt ReliefImage by Drab Makyo via FlickrFirst things first, make sure you have an emergency fund. You will need some Murphy repellent along the way. Most would agree on having at least a $1,000 in the bank, with easy access, in case of an emergency. Credit cards are not for emergencies, and a new Blue-Ray DVD player is not an emergency.

Now with that out of the way, here are my initial steps on the journey to becoming debt free.

1. Track every expense; every penny has to go somewhere. Use the history from your bank statements, electronically is preferable, to generate a starting reference point.

2. Start using a cash envelope system for certain expenses. Allocate less cash than you were spending when you review your expense tracking.

3. Work up a written budget. A spending plan before the month begins. Allocate every dollar of income to a category of your budget.

a. Take care of necessities first: minimal food, shelter, necessary utilities, transportation, basic clothing – no frills, no luxuries

b. Minimum payments on all debts. Set up electronic payment everywhere possible.

c. Then look at optional utilities/services: cable/satellite, phone services, internet service

d. Next look at personal wants and pleasures

e. TRIM THE FAT – immediately remove or reduce the obvious

f. Add that money to your minimum payment on the smallest debt, using a debt snowball approach.

4. During the first couple of months using the budget, prepare to take the extra money, at the end of the month, and add to your debt snowball to pay off the debt

5. Once you are more comfortable with the budget and your spending levels off, begin sending the extra money you “find” within your budget toward your smallest debt throughout the course of the month. This would be called snowflaking your debt. Instead of waiting until you accumulate a snowball, send all the little snowflakes along the way so that money doesn’t find an alternate place to escape.

PLUG AND CHUG – work and rework the budget. Remove low hanging fruit again and again. As your intensity and momentum increase, find other things to remove/reduce. Look for ways to earn extra money. Keep at it and don’t lose focus. As Dave Ramsey would say “Live like no one else, so later, you can live like no one else.”

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