Getting out of debt is something everyone wants to do but no one ever tries to achieve. The biggest reason is that most of us are in so much in debt that the task appears to be unachieveable. There are a lot of debt reduction and wealth building strategies out there. Realizing that actually leads me to the first and most basic debt reduction strategy: Develop a budget. An efficient money management plan will save money, reduce debt, and set you free. Debt doesn't have to control your life and you can start living debt free and building wealth no matter what your income. Reducing and eliminating your debt does not happen overnight. However, if you outline a realistic plan for reducing debt, you can become debt free in a few years.



Before achieving your goal, you must outline a detail plan for eliminating debt. This is not as hard as it sounds, as a matter of fact; it's not hard at all. First you have to understand what debt is. Monthly payments can be broken into two categories: Debts and Expenses.

• A debt is a specific amount of money owed for goods or services paid over time. For example, debts include your home mortgage, a home improvement loan, a car loan, an education loan and credit card balances carried over from month to month. These are all amounts that eventually CAN be paid completely off. However, DO NOT include bills you pay off each month, such as credit card charges you pay in full when the bill comes in.

• Expenses are payments without a “fixed purchase” amount, such as food, taxes, utility bills or insurance premiums. These are on-going payments that can't usually be eliminated. You can never totally pay them off.

After you have calculated your monthly expenses, deduct the total from your monthly take home pay. Don't forget to allot a small amount of money for miscellaneous and gas for your car if necessary. The remaining balance of your monthly take should be allocated towards your debt with the exception of a small amount of emergency funds you should be building up each week.

There are three ways you can start to reduce your debt each month:

• Highest Interest Rate First: This method lists your debt payoff priority by having you pay off the highest interest rate first, descending down the list with the lowest interest rate debt paid last.

• Smallest Balance First: This method lists your debt payoff priority by having you pay off the debt with the smallest balance first, descending down the list with the largest balance paid last.

• Smallest Payments First: This method lists your debt payoff priority by having you pay off your smallest payment debt first, descending down the list ending with the largest payment debt.

I would recommend either highest interest rate first or smallest balance first. Smallest payments first is ok but the other two choices can really accelerate your debt elimination. I have been using the highest interest rate first option for 18 months and am on par for total debt elimination within the next four years. I will periodically keep my readers updated on my status. For illustrative purposes I will assume you will use the highest interest rate first option. You know, interest payments are what keep people down. If you ever knew just how much interest you will pay collectively over your life you would get pretty disgusted. The good news is by eliminating your debt and paying cash for everything or charging and paying in full each month, you will take all of that money (hundreds of thousands and sometimes millions of dollars over a life span) and invest it so that you can either retire early, or retire extremely comfortable. Now back to our illustration, after you pay off your first debt, you will then take the money you paid each month to that debt and apply it on top of the amount you are paying on the next highest interest rate debt. This adds up quickly, and then you take the amounts for those two and apply it on top of the next one. One thing you do need to keep in mind is always save your mortgage or highest debt for last regardless of the interest rate as eventually you will be applying your entire non-expensed monthly take towards this balance. Once you start doing this, your loan will amortize much quicker regardless of the interest rate because all the extra cash will be applied towards principal, then the interest payout will shrink because it can only be based on the remaining principal. If you ever look at a mortgage amortization you will see very little of your payment goes towards principal for the first 2 thirds of the loan term.

There will be a few bumps along the way but no matter what your income is, you should be able to become debt free in five to seven years, and that is when your life will change forever. Treat this project like a game or contest and have fun with it along the way, there will be no greater prize then eliminating your debt once and for all. I'll show you how to lower your monthly expenses as well to help you either accelerate your debt elimination, or just have some extra cash for those little bumps along the way.