Commit to getting out of debt, no matter what it takes.

The first step is realizing that your debt is a problem and deciding you do not want to live under its weight. Enlist the support of family and/or friends. This does not mean you tell the whole world what is going on, but if you have someone close to you (or a few trusted people) who will ask how the process is going, that may help you stay on course. If you are married, attack the problem with your spouse.

There are different kinds of debt, and you may want to differentiate between these types – you may decide to keep some debt, but not other debt. For example: we do not often recommend paying off your mortgage early, as a low-interest-rate mortgage can be an inflation hedge and allow you to invest money that would otherwise be used to pay it off. However, to some people, being in any kind of debt is difficult, and they have a personal goal of owning their home outright.

Student loans are debts that can either be paid off slowly (if your interest rate is below 5%), or if the rates are higher, you might consider adding them to the list of debts to attack quickly. Consumer debt, such as credit card debt, is what we refer to as “bad” debt, because it comes with a high interest rate, and is the type of debt that is more easily avoided and tends to hang over people.

Most people are comfortable with having some debt (like a mortgage, for example). But how much is too much? You can calculate your “debt to income” ratio to analyze your situation. To calculate this ratio, divide your total debt payments by your income. First, add up all your debt payments, including rent/mortgage, car payment, credit card bills, and other loans. Then divide this number by your income. You can use monthly values or for a yearly value, multiply your monthly debts by 12 and use your yearly income (the latter method may work better for people whose income is not steady).

If your ratio is under 15%, you are doing incredibly well. If your ratio is over 40%, you may be considered “overextended” and you may be in trouble. Look closely at your debts and consider if any of them could be reduced if you sacrificed in a few other areas.

Debt has an emotional cost as well. It can feel overwhelming, cause feelings of shame, or feel crushing. Do not despair! There is something you can do about debt. It will take time, and it will certainly take some sacrifice, but think about your end goal.

Commit to doing the hard work of getting out of debt. Think about what motivates you to make changes: is it how good it will feel to be debt-free? Think about what caused you to be in your current situation. Are you trying to keep up with a standard lifestyle? Is it a lifestyle that just crept up on you? Do you use retail as therapy or have difficulty telling yourself “no” and delaying gratification? Or maybe you are in debt because of things outside your control: you lost your job or had large unexpected medical bills.

There are many reasons why people get in debt, but I have yet to meet someone who was happy being there. Once you know how and why you arrived in your present circumstances, you can focus on getting out.

Self-reflection can be painful, but dealing with the problem and moving past it with a concrete plan will be better in the long run.

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