Mindful Money

Practical Tips to Get Out of Debt  

Getting out of debt is on the minds of many consumers, and many financial professionals have increased their bottom line telling others how to get out of debt.  How do you get out of debt?  Do you really need a financial professional to help you?  Did you need a financial professional to help you acquire the debt?  My guess is most folks who truly want to get out of debt can begin to take the initial critical steps on their own.  If a second opinion is needed on how to best proceed, seek advice from a credit counselor who is not associated with a profit-making business or look for a community agency that may offer credit education classes.  Here are a few steps to help you get started:

1. Stop charging or using credit cards. Commit to using cash,
   checks or your debit card for future purchases until your debts have been repaid.  In short, if you cannot pay cash or the equivalent of cash, do not buy the item or service.           
2. Make a list of your creditors, the amounts you owe, and the annual percentage rate (APR) associated with each debt.             
3. Make a written plan of how you will repay the debt.  Which creditor will you pay off first?  Some might find it encouraging to pay off the creditor with the lowest balance first and then focus on the next lowest balance.  Others might choose to get rid of the debts with the highest annual percentage rate or interest rate as that debt is costing more in finance charges.  You will have to decide which approach is best for your circumstances.            
4. Develop and use a budget to keep your spending in check for routine expenses (food, transportation, utilities, etc.).  Include your debt repayments as part of that budget.  Simply stated, a budget is a spending plan that lists your income sources and your expenses for a budgeting period (biweekly or monthly). When all the money allocated to a category or expense is not spent, the unused amount can be used to make extra payments on the targeted creditor.  Budgets are the most useful tool for getting your personal finances in order. Tracking your spending on paper allows you to observe your expenditures and redirect the money where you want it to go.          
5. Get a part time job and devote all earnings to repaying           debts.               
6. If you don't have an emergency fund, start saving money so
   you have some cushion to fall on if an unplanned expense surfaces. The emergency fund could be one of your budget categories until you reach the desired amount.   Ideally, you should have three to six months of normal living expenses in an emergency fund.  However, if you are trying to get out of debt, your emergency fund may be a few hundred dollars.  Something is better than nothing when you cannot reach the ideal.           
7. Explore available resources designed to help you handle debt.

• PowerPay is a tool developed by the Utah State University Extension to help consumers tackle debt repayment on their own.  In addition to the PowerPay tool that allows you to list your debts and look at various scenarios for repaying them, the site includes an Education Center that has information related to credit and debt repayment. 
• eXtension is a web-based source of objective, research-based information that can improve lives.  Debt and credit are only a few of the many topics covered in this resource. 

      8. Finally, if you have a spouse and children, have a family                     meeting and explain the plan and why you have to do this as           a family. Success will come sooner if everyone is on the same           page and cooperating.

About the Expert

Cathy Faulcon Bowen, PhD., CFCS

The Pennsylvania State University

Department of Agricultural Economics, Sociology, and Education

Cathy Bowen is a professor and 

consumer/financial issues specialist in the Department of Agricultural Economics, Sociology, and Education at Pennsylvania State University.  She works with county-based extension educators to reach Pennsylvania residents with information on basic money management including credit, consumer rights and responsibilities and fraud and scams.  She teaches a course Consumer and Financial Skills that targets juniors, seniors, and graduate students.  Bowen's work has received national awards by professional organizations as well as been featured on NPR, National Public Radio and CNN's Open House. 

Dr. Bowen is member of several organizations including, The Association for Financial Counseling and Planning Education, The American Association of Family and Consumer Sciences, National Extension Association of Family and Consumer Sciences, and The Financial Planning Association.

Bowen earned a bachelor's degree from North Carolina A & T State University in Greensboro, North Carolina and completed graduate studies at The Ohio State University in Columbus, Ohio (M.S. and Ph.D.).  

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