Debt Diet Step 1: How much debt do you really have?

Calculate how much debt you really have so you can begin paying it down.

Oftentimes many people do not even know how much debt they really have. This is an important step to getting your debt under control.

It's a good idea to run a three-in-one credit report. A three-in-one credit report is a combined credit report from each of the three credit bureaus (Experian, Equifax, and TranUnion). Whether you regularly get monthly statements or not, running this kind of credit report will show you any old debts that you still may owe, along with anything that may be being reported to the bureaus for which you may not be responsible.

What "kind" of debt is just as important as how much...

Knowing your "Point A", your "current reality" or where you're starting from IS the best place to start. If you were driving to New York, how would you know where to go if you didn't know where you were starting from?

But knowing how much debt you have is only one side of the coin. The other side of the coin is knowing what kind of debt you have.

Knowing how much of each type of debt you have will make a HUGE difference in understanding which options are available to you, AND how each option will impact you.

TAKE ACTION!

Organize your debt into these categories:

• Secured Debt - This includes any debt secured by a title or asset, like a house, car, motorcycle, boat, RV, etc. This may also include dirt bikes, quads, jewelry, or furniture.

• "Qualified" Unsecured Debt - This includes all unsecured debt (debt NOT secured by a title or asset) that may qualify for debt management programs such as credit counseling, debt negotiation / settlement or other debt management programs. Qualified unsecured debt includes credit cards, personal loans, credit unions, hospital & medical bills, collection accounts, and deficiency balances. Some examples of unsecured debt that is not qualified for debt management programs are payday loans, cash advances, Military accounts, public utilities, personal loans from family or friends, and student loans.

• Other Unsecured Debt - All unsecured debt ""not included"" above

• Student Loan Debt - Self explanatory.

• Tax Debt - Any debts owed to the IRS or State TAX authority.

Once you know how much of each kind of debt you have, document it and keep it handy. If your situation changes, update your info and keep it current.

Debt Diet Step 2: Track your spending and find extra money to pay down the debt

Cut back on daily extras and find savings where you least expect them.

Track Your Spending: This is a multi-part step. The first part is to track your spending. Track each and every penny that you spend, whether it's food, coffee, gum, bills, etc., track it and write it down for review.

This alone can be very powerful. It can show you just how much of your money is eaten up on the little things. This is what one of Oprah Experts refer to as the “Latté Factor®.” Say you buy a latté every day… after all, it's just $5, right? But added to the soda each day, a snack from the vending machine at work, some gum and maybe some candy, too it really starts to add up! Just $10 a day can double the minimum payment on a $10,000 credit card! That’s up to $3,600 a year!

Trim the Fat: The next part to this step is “trimming the fat.” Look at where you are spending your money. It's time to make sacrifices. Try using a budget calculator to find some extra cash to pay down your debts. From cutting back to basic cable or not eating out as much to downsizing your big-screen T.V. and giving up the extra car, cutting back on these extra expenses can really cut back on your total debt!

You probably know how much money you made last month, but do you know how much money you spent? Or do you know how much money you have left to spend this month? If you don't, you're not alone, most people have no idea.

The fact is most of us spend 10% more per month than we make. That comes out to $431 per month based on the average American income. No wonder the average credit card debt is now at $8,500!

So why is it so difficult to track your spending? Today we live in a near "cashless" society. Using debit cards, credit cards, automatic deposits, and wire transfers, we rarely even see our money. It's easier than ever to spend, spend, spend!

Traditionally, many people managed their money by dividing their cash into several paper envelopes. An envelope for food, entertainment, utilities etc. They then spent their money from these envelopes. They always knew how much money they had left to spend, and how long it had to last. So how can we use such a simple, effective system today, when we don't even see most of our money?

TAKE ACTION!

• Track every penny that you spend for the next 30 days

• Create a spending plan and stick to it!

Debt Diet Step 3: Learn to play the credit card game

Get expert advice about how to lower creditor’s interest rates.

This, again, is a two-part step. The first step is attacking your interest rates. Many people who are deep in debt are suffering from high interest rates. Creditors may raise your interest rates if you are ever late on any payments or simply because you have too much debt.

You will want to contact each of your creditors and lower your interest rates. This is not always easy but if you follow some of these simple secrets, you may find that your results are better than you would expect!

Once you have gotten your interest rates lowered, you will want to re-assess how you use the money you have allotted to pay them off. You can also use the extra money from your budget that you uncovered to pay your cards off quicker.

Know your options.

Making minimum payments is simply not smart. It's purely in the best financial interests of the bank, not you. If you can afford to pay OVER the minimum payment each month, then you can use an accelerated payoff plan (AKA: "roll up" / "roll down") to avoid paying insane amounts of interest and get out of debt faster.

You can use the Dead on Last Payment method as mentioned by David Bach or a system that pays off the highest interest rate card first, which can save you the most money and getting you debt free faster.

But what other options exist?

• Do you have equity in your home for a debt consolidation loan?
• Did you know that credit counseling could significantly reduce your interest rates and get you debt free faster?
• What about debt settlement? Did you know you could be debt free for lot less than what you owe? ...And completely eliminate interest?
• Is bankruptcy right for you?

These questions are worth looking into. In fact, they could be worth THOUSANDS of dollars to you, if you know your options and make the right choice. They could mean the difference between freeing yourself from debt in 30 years or in 30 months. Don't you think it would be wise to get some quality answers and truly know your options?

TAKE ACTION!

While learning to play the credit card game and getting expert advice about how to lower creditor’s interest rates is important, we think it's more financially intelligent to take it a step further. There IS more out there and you deserve to know the truth about which options exist for you and how each option would impact you.

REMEMBER: Always beware of anyone offering only one option. Learn about and consider all of your options before choosing what's best for you.

Debt Diet Step 4: Stop spending

Teach yourself to spend less and save more every day.

This step is everlasting and can take a lot of focus and energy. For many people, they must break life-long habits in order to make this work. Creating your budget will help tremendously. At that point, you only have so much per week, or per month, to spend on any given category (groceries, entertainment, cigarettes, etc.). The more to stick to the budget, the more you will begin to get comfortable with it.

While you must control your spending in order to overcome debt, it's good to point out that this step holds a SECRET...

Money is a highly emotionally charged subject. Spending is emotional.

So how do we deal with it?

How do we control our spending?

The secret is that our deep, emotionally driven need to spend money is actually the key to gaining control. Even better, we can harness these same emotional drives that have caused us to spend out of control to awaken our financial genius.

If you want more... but instead of being able to afford it, you go into more debt, well, that's not very financially smart. You will need to STOP SPENDING and discipline your self to create and stick to a spending plan.

But remember what you want!

If you want to spend, that's great! HOW CAN YOU?

More income is usually the answer. It's critical to control spending. At the same time, it becomes the perfect motivator for you to stick to your budget and find ways to "trim the fat" AND to earn more money ...so you can buy the things you want!

Having a clear, motivating goal and purpose is what you need to stick to any plan, especially a spending plan.

TAKE ACTION!

Decide what you really want and why you want it. Get committed! Then sticking to a spending plan will be possible. Along the way, controlling your spending will become freeing, fun and fulfilling.

• Think about what you really want. Define it clearly and specifically. Write it down as your goal.
• Focus on this goal whenever you meet resistance in starting or sticking to your Debt Diet.
• Realize that in order for you to have what you want, you simply must follow the steps of the debt diet.

Debt Diet Step 5: Create a monthly spending plan

Creating a budget helps you estimate your monthly expenses and free up money for paying off debt. It is recommended that you divide your budget as follows:

• 35% Housing
• 15% Debt
• 15% Transportation
• 25% Expenses
• 10% Savings

If you get paid more than once per month you can determine which bills to pay from which paycheck. Check all of your bills and plot their due dates on your calendar. Pay as many bills on time as possible from each paycheck. Some expenses, like groceries or entertainment, can be allocated per pay period. For example, if your monthly plan is $400 and you get paid on the 1st and 15th, you can allocate $200 per check.

TAKE ACTION!

• estimate and plot your monthly expenses
• allocate your take-home pay toward specific budget categories
• assign your paychecks to specific monthly expenses

Debt Diet Step 6: Grow your income

Once you've started to make significant contributions to paying down your debt, it's time to consider other ways to pay that debt off quicker. One way to do that is to increase your income so you have more money available.

Start out by making hard choices about "big-ticket" items in your life, namely: your house, your car, your children's education. Can you move into a smaller house? Can you find alternate methods of transportation to get to and from work? Can your children go to public school? Making sacrifices in these three categories can help tremendously to free up more money for paying off debt.

You may also have a lot of items sitting around the house that are unnecessary. A boat, and extra car, an old coin collection - any number of these things could be sold, and the proceeds put toward debt reduction.

The obvious way to increase your income is to get paid more. Ask for a raise or, if you're self-employed, raise your rates. You might even consider getting a second job. Even an extra $100 per month can make a significant difference in your ability to pay off debt quickly.

TAKE ACTION!

Grow your income by:

• downsizing on your big-ticket items
• selling off some of your assets
• earning more money

Debt Diet Step 7: Prioritize your debts and increase your credit score

Secure debts - or those backed by your assets - are your top priority. Student loans and child support, for instance, are debts for which your wages can be garnished if you fail to pay. After you see to your secure debt, the next most important debt categories are services that you need to continue using, such as paying medical bills if you have a chronic illness. After those are taken care, you can then focus on unsecured debt, like your credit cards. Finally, pay back debts to family and friends. Hopefully, they're more understanding than your other creditors.

Your credit score is an important piece of information that can affect how much money you can borrow and what kind of interest rates you'll pay, among other things. In general, these are the factors that affect your credit score:

• 35% – How well you pay your bills
• 30% – How much credit you have available to you and how much of that credit you're using
• 10% – How recently you have opened (or inquired about opening) new accounts
• 10% – The percentage of your file that is bankcard debt vs. the percentage of installment debt
• 15% – How long you have had the cards

Here are some steps to help improve your credit score:

• pay your debts on time
• pay off as much credit card debt as possible, so that you're not using any more than 20%-30% of your available credit
• stop applying for more credit, unless your shopping for a mortgage or car loan
• it's good to have at least 1 credit card that's over 2 years old, so don't cancel all your old cards

TAKE ACTION!

• pay off secured debts first
• understand what your credit score is and what areas of your life it affects
• boost your credit score using the tips above

Debt Diet Step 8: Understand your spending issues and save

One of the keys to getting out of debt is to stop creating more debt. Different people shop for different reasons. By understanding your personal motivations for spending money, you can train yourself to spend less.

Reasons for spending:

• Entertainment
• Mood repair
• Habit
• Impulse
• Compulsive behavior

Once you understand your spending issues, you can begin to save. In times of financial crisis, it is good to have a stash of money saved up so you don't have to fall back on credit cards (and go further into debt). Start out by saving 3%-4% of your income, and eventually work your way up to 10%. Put your savings in a safe place, such as a high-yielding money-market account. Once you have accumulated 3-6 months worth of salary, you will have a good emergency cushion to help you through rough times. Everything you save beyond this emergency cushion should be invested in a portfolio that can help you grow your money over time.

TAKE ACTION!

• understand why you spend
• modify your spending behaviors
• save money to create an emergency cushion
• invest your savings and build a foundation for future wealth