How to Get Out of Debt and Build a Budget

Debt can be a huge burden that eats up a large part of many people's income. For this reason, many are looking for strategies to help them budget their money better and get out of debt. These two tasks go hand in hand. Building a budget will help to keep you from overspending as well as help you set aside additional money to apply to your debts so that you can pay them off more quickly.

• 1

  Determine your total debt. Collect all of your bills and calculate the total amount you owe and at what interest rates; unless you really know how much debt you have, it will be difficult to budget appropriately to pay down your debt at the optimal rate.

• 2

  Rank your expenses from the most important to the least important. Place necessities at the top of the list; food, a place to live, utilities, and taxes should all be considered necessary items. Put credit cards, furniture payments, and other less important items at the bottom of the list of things you have to pay. Remember, you shouldn't avoid paying these altogether or you will negatively affect your credit, but if you need to miss a payment any month these are the least important ones to make.

• 3

  Track your spending for a month. Pay particular attention to things that you spend unnecessary money on. Cut out items like expensive coffee drinks, eating out and drinking bottled water all of the time if they are draining your finances; cutting out an extra $10 a day spent on coffee drinks can provide you an extra $3600 a year you can apply to your debts.

• 4

  Create a spending plan based on your spending habits versus your bills and debts. Free as much money as possible to apply to your debts by making sure you cut out most unnecessary expenses each month when you create your spending plan. Include some money for savings to provide yourself with a safety net in case of unexpected expenses (like auto repairs) in any given month. Use computer software like Quicken, Microsoft Money or Mint to help you if you don't want to do this by hand.

• 5

  Prioritize your debts. Place secured debts (assets that can be repossessed) at the top of the list. Put debts like taxes and student loans which can lead to wage garnishment second on the list. Include services you intend to continue using and do not want to be banned from using for lack of payment third on the list. Apply any extra money left after paying these debts toward unsecured debts like credit cards to pay them off as quickly as possible.

• 6

  Continue to budget your money and pay as much as you can on your debts each month until you have successfully paid off all of your debt. Keep budgeting your money even after you have paid off your debt to keep yourself from falling back into debt.