Updated on 12.18.15

The First Step Out of Debt

It may be different for everyone, but what matters most is that you take it.

Anyone living with a mountain of debt knows that getting into debt is an absolute breeze. But digging your way out? Now, that’s the hard part.

Most of the time, something drastic has to happen for us to realize our debts have become an emergency — and that it’s time to make a change. But where do you begin?

When you’re bleeding money in so many directions you can barely keep it straight, figuring out what step to take first is the worst (and hardest) part. And sometimes, the complexity of your situation can even leave you paralyzed. When you’ve got debt coming out of your ears, it’s easy to stick your head in the sand and hope it all goes away.

Sadly, it never does.

The First Step Out of Debt: It’s Different for Everyone

Everyone who has ever dug their way out of debt already knows exactly what this feels like, yet they managed to create a plan of escape that worked. But how?

In an effort to share some of the best “first steps” out of debt that could work for anyone, we asked several popular debt bloggers how they got started at the very beginning. Here’s what they said:

First Step: ‘I prioritized my loans by interest rate or sense of urgency.’

“The first thing I did to get out of debt was find out how much I owed and look at my interest rates,” says Melanie Lockert of DearDebt.com. She began her debt-free journey by taking a look at everything she owed and organizing it by interest rate. Using this method, she says, she was able to get a mental picture of her situation in its entirety, which allowed her to create the best plan of attack.

“Once I saw that my graduate loans’ rates were much higher than my undergraduate loans, I decided to focus on the avalanche method, getting rid of high-interest debt first,” she says. “It’s important for me to save money even while paying off debt, so I knew tackling the higher interest would work best for me.”

Whether you opt for the debt avalanche, debt snowball, or some other method, seeing how much interest you’re paying might be enough to shock you into action regardless.

Paula Pant of AffordAnything.com took an entirely different approach when it came to paying off her rental properties. To get the ball rolling, she says, she started throwing extra cash at the loan “that’s most emotionally annoying.” It had neither the highest rate nor the lowest balance, but it was the one she wants to get rid of most. “That’s a motivating strategy,” she says.

In other words, you can begin the process by attacking any loan or debt you want. The main step to remember is to pick one and get started.

First Step: ‘I created a budget.’

“The first step I took to get out of debt was start a budget,” says John Schmoll of FrugalRules.com. “I had no idea where my money was going — that’s what got me into trouble in the first place.”

After realizing he was using credit cards to finance a lifestyle he couldn’t truly afford, Schmoll decided it was finally time to figure out where his money was going and create a budget that could fix the problem. For Schmoll, that meant tracking his spending and forming a budget that would keep his family accountable.

Here at The Simple Dollar, we’re big fans of the zero-sum budget. However, there are several other popular budgeting methods to explore, each with their own set of pros and cons.

No matter which one you choose, you’ll likely end up in a much better spot. For Schmoll and his family, budgeting was “the beginning of what began the journey of killing my debt once and for all.”

But creating a budget isn’t always enough, says Chris Peach of MoneyPeach.com. While it’s cute to say you’re going to pay down debt, says Chris, “cute doesn’t get it done.”

“You must tell your money what to do or it takes off and does what it wants. Get on a budget and start telling your money what to do.”

taking a step out of rubble

When you’re ready to leave your debt behind, here’s how to take that first step. Photo: Kristaps Bergfelds

First Step: ‘I took a snapshot of our entire financial picture.’

For Deacon Hayes of WellKeptWallet.com, getting out of debt meant taking a close look at his family’s finances and figuring out exactly “where they were at.”

“The first thing we did to get out of debt was take a snapshot of our total financial picture,” he says. “We put together a spreadsheet that not only tracked our income and our expenses, but it also tracked our assets and our debts.”

Taking a closer look at their finances was all it took to get he and his wife on the straight and narrow. It also gave them a clear picture of where they were starting from so they could create a realistic plan of attack, he says.

Taking stock of your financial situation is one of the most important steps toward improvement. Why? Because you can’t figure out where you’re going if you don’t know where you’ve been. And you also cannot fix something you haven’t acknowledged.

Tai and Talaat McNeely, money experts who podcast about family financial matters at His and Her Money, believe the “big picture” analysis of your financial situation has to be the first step.

“After tracking down all of your debts, you’ll have a defined and clear realization of your true debt load. Take a long, hard look at your list of debts, and marinate on it,” they explain. “You now have a clear picture of the hole that you need to dig out of. With your debts clearly defined, you now know what target you are aiming at and can create your plan of attack accordingly.”

First Step: ‘I admitted I had a problem.’

Getting out of debt is impossible if you can’t admit you have a problem to begin with. That’s exactly what happened to financial planner Shannon McLcay of The Financial Gym before she finally got her money straight.

“I used to charge up my credit cards all the time in anticipation of paying them down with bonus or tax return money,” she said. “I never thought I had a problem because I paid off my cards all the time.”

Eventually, though, Shannon realized she was actually creating the problem herself — and using debt as a crutch to merely get by.

When you’re able to make your monthly minimum payments, it’s easy to think everything is OK. But, in truth, that is an illusion that only debt can create. By letting us live outside of our means, credit cards and loans mask the real problem until it finally spirals out of control.

“Once I realized that my spending was creating an unnecessary debt situation and that I was part of the problem, I could start to find the solution and change my ways,” she says.

First Step: ‘I consolidated my debts.’

“My first step to getting out of debt was consolidation,” says Jim Wang of Wallet Hacks. “I had several student loans and consolidated them all into one payment.”

This was a smart move for Wang because he was able to score discounts for paperless statements, automatic payments, and a string of on-time payments. “It also made everything easier because I only had to manage one account and not three,” he says.

If you’re in certain kinds of debt, lumping your loans together can be a smart and frugal plan. A great balance transfer card, for example, can save you thousands of dollars in credit card interest while simultaneously speeding up your payoff date.

If you’re drowning in student loan debt like Wang was, consolidating those loans can pay off in spades. Fortunately, sites like LendEdu.com allow you to fill out one application and get quotes from several student loan refinancing companies. Also read our Student Loan Consolidation Guide for details on the pros and cons of consolidating or refinancing federal and private student loans.

First Step: ‘I shocked myself into change.’

We’ve written about the importance of tracking your spending time and time again, but it’s important to note why this step is so crucial. Simply put, there are times when you must shock yourself into taking steps to change. And if you have been wasting money on who-knows-what for quite a while, confronting that truth might be the best first step you can take.

That’s exactly what happened to Jacob Wade of IHeartBudgets.net at the very beginning.

After listening to Dave Ramsey’s “The Total Money Makeover” during his commute, he says, he broke out his bank statements from the last three months to see what was going on.

“I took all the spending and put it into categories to see where the money was going. And I almost had a heart attack, realizing I had been spending $600 per month on mall food!” says Jacob. “That opened my eyes and I immediately made a real budget and tracked every dollar from then on.”

This may hurt a little bit, but it won’t be nearly as painful as letting your spending go unchecked indefinitely. So break out those bank statements if you dare. If you wind up being afraid of what you see, perhaps it’s because you should be.

The Bottom Line

Spending your way into debt is as easy as pie, but turning your situation around may take everything you’ve got. Still, it always starts with a first step — the one moment or action when everything you thought you knew changes and you’re finally ready to turn your life around.

That first step may be different for everyone, but there’s only one thing that matters here — taking it. Finding your first step may be the hardest thing you’ve ever done  … as it was for every person who shared their story. But the longer you wait, the harder it will become.

What was your first step out of debt? What kind of progress have you made since then?

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