Five Year Plan for Getting Out of Debt

Set Goals

• Before you set the specific terms of your debt-reduction plan, set clear financial goals that you want to achieve. Financial goals are crucial in helping you achieve the things you want. Reaching the goals requires planning, patience and the willingness to work hard to save as much as you can.
  
  

Compile List of Debts

• Compiling a list of your debts can help you reach your financial goal of being debt-free in five years. It is crucial that you get a handle on your debts when you create your debt-reduction plan. You must have a clear understanding about how much money you owe. This includes everything from your mortgage and car payments to medical bills and student loans. Gather your bills, invoices and statements and tally them up. This total will be your starting point in figuring exactly how much money you will need to bring your outstanding balances to zero within five years.
  
  

Create a Budget

• Budgets are crucial in helping you spend within your means. The amount of money you are spending to reduce your debt over the course of the five-year plan should be included in your budget. For example, if your five-year reduction plan requires you to dedicate 5 percent of your income to your outstanding debts, that amount should be included in your budget.
  
  

Priority Debts

• Structure your budget so your rent or mortgage is paid first. Next, pay the loans or credit cards with the highest interest rates. Place a high priority on paying debts that have been sent to collection agencies. You may be able to negotiate a payoff settlement that reduces your bill. A creditor may be willing to lower the amount you owe, your monthly payments or your interest rate.
  
  

Do More

• Your five-year plan should include extra payments that you make on your outstanding debts. Get in the habit of paying more than the minimum amount due. Although you may not be able to double the payment on your debts all of the time, the times you do will contribute greatly to your goal of reducing your debt. Consider getting a second job to help pay down your debt.
  
  

No New Debt

• Over the course of your five-year debt reduction plan, you should not take on any new debt. That would defeat the purpose of trying to get out of debt. You may be tempted to open new credit accounts, especially if they come with no or low interest rates. However, you must be disciplined and keep your goal of getting out of debt in mind.