5 Steps to Take to Get out of Debt and Stay out of Debt

No matter your level of debt, we can all improve our futures by understanding and controlling our finances. To truly build security and wealth, we need to know where our money is going, determine if we're spending in line with our beliefs and values, and course-correct if something is out of balance.

1) Figure Out Your Take-Home Wage

You may have a job that pays you $20 an hour, but your take-home wage refers to what actually ends up in the bank. For example, 40 hours at $20 is $800. However, if, by the time deductions, loan payments, insurance, and other fees come out of your check, you have $500 leftover, then your take-home wage is much less than $20.

Also, you need to consider your time commitment. From the time you get up in the morning, how much of your day is directed toward your job? Factor in things such as your morning commute, your lunch hour, and the decompression time when you get home. Factor in this time when figuring out your real hourly wage.

Finally, consider the fees for your job. Do you have dry cleaning bills that you wouldn't have but for your job? What about your car? You may find that taking a job that pays less on paper but takes less of your time overall might make better financial sense.

2) Track Your Spending

The simplest way to track your spending is to go back to cash. Receipts will replace your dollar bills, and when you're out of money you'll have the data to show you why. You can keep a credit card for emergencies, but you can't carry it. If you're struggling to pay your bills, going back to cash may seem impossible. To make it work, weld your wallet shut.

Pay the minimum on your bills and, for two weeks, buy nothing unless you're completely out of it. No regular shopping trips, no stops at your favorite store on the way home. For two weeks, buy nothing. Again, pay the minimum on your latest round of bills and put the extra in your wallet. If you need anything (and you probably will, after two weeks) pay cash for it. You're on your way.

3) Get Help

If you can't pay the minimum and late fees are piling up, you may need professional help to set up a credit card debt settlement program. Someone else will call your creditors and negotiate a lower settlement. Your credit may take a hit, but not as big a hit as if you file for bankruptcy protection.

4) Filing for Bankruptcy

Debt stress is awful, and over time it can be fatal. If you've been laboring under a heavy load of debt and can see no way out, talk to a credit counselor. Then can help you determine if you're a good candidate for their program, a debt settlement program, or bankruptcy. Filing for bankruptcy may feel like failure, but it can be very freeing to have someone else dealing with the phone calls and the stress. If your relationship is suffering from debt stress, or you're losing sleep or making poor life decisions because the stress is eating you up, bankruptcy is cheaper than divorce and bad health.

5) Own Your Thinking

When we were infants, we cried and got food and comfort. It's natural and normal to look outside yourself for joy and validation. If you're prone to shopping as entertainment, you're still looking outside yourself for a positive boost. However, buying for joy means nothing if the ownership of what you just bought is destroying your financial future.

If you want something, step back. For those who take the two week no spend challenge, you know you can wait two weeks. If you still want it in two weeks, buy it. This simple step of waiting to buy exactly what you need, rather than what's on sale or whatever catches your eye, is the healthiest and sanest use of your hard-earned dollars.

Debt stinks. It's hard to get away from. By going back to cash, only buying what you need, and getting help when you need it, you can put debt firmly behind you. Figure out your real hourly wage and decide if the thing you want is truly worth the hours you'll spend to buy it. If so, revel in it. If not, leave it on the shelf.