A year ago, I was in heavy debt. Day after day, I found myself in a credit crunch. Things took a turn for the worse when I started taking out loans to pay off other loans. I’d use one credit card to pay off debt on another credit card, not realizing I was taking on more debt.

I also made late payments on my utility and credit card bills and therefore had to pay penalties on them. My debt started ballooning – growing faster and larger – because I was being charged higher interest rates. I had debt collectors breathing down my neck, but I had no money left to pay off my creditors. It took me time and discipline to turn my money situation around. Here are five essential points I learned to not do in order to get out of debt:

1. Stop neglecting money issues: take control

Make a list of your income and your expenses. You need to be able to make more than you spend. You should also focus on your necessities and let go of luxury items. Also, make a payment plan for paying off your creditors. This will help you in forming a budget. Lastly, take a pair of scissors and cut up all your credit cards. They will tempt you if you keep them, so this is necessary for being debt free. If you must, keep a single credit card for emergencies, but only one with a low credit limit.

2. Stop spending aimlessly: make a realistic budget

Keeping track of your income and expenses is just a small step, the bigger step is to make a budget and stick to it. Allot realistic ratios to different kind of expenses, for instance 20% of your income should be able to cover your food bill, 40% of your income should cover your utilities, and so forth. Let go of unnecessary items such as gym memberships and expensive beverages. Make sure you have enough left over to pay some part of your loans.

3. Stop spending your emergency fund: it’s only for emergencies

An emergency fund works like this: when you keep money in the emergency fund you are supposed to forget that the emergency fund exists. This is because these funds are for emergencies only and paying off your debt is not an emergency. This money shouldn’t be touched, but you should find other sources of income, like a second job or project-based income, and you may have to sell some personal items to have cash inflow. How well you can generate income will be directly proportional to how fast you get out of debt.

4. Stop deferring bill payments: your debt will balloon up faster

Make it a principle to pay in cash only. Don’t use credit cards as they are a form of deferred payment that charge you interest. Deferring large payments on your cards will increase the burden of your debt faster because of the high interest rates and penalty fees. Negotiate with your creditors on an agreed payment plan.

5. Stop paying high interest rates on your debt: negotiate!

It is not that hard to negotiate better interest rates. Gather all your financial statements and speak to a representative of your credit card company or financial institution. Be courteous to them as they are doing you a favor! Remember to make monthly payments in full and on time, this will make you eligible for lower interest rates. If you have a history of late payments, then make sure you pay on time in the future and keep trying to negotiate a lower interest rate. If they still don’t lower your interest rate after your persistence, then consider taking your business elsewhere to another company that will give you a better deal.

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