Laura D. Adams - Money Girls Smart Moves to Deal with Your Debt

You Might Think That Because Im Money Girl, Ive Never struggled with debt. You might imagine that my finances have always been flawless and that Ive never made a bad decision about money. Or maybe you think that Ive never worried about how to pay off a growing credit card balance. Well, if you believe any of those things, youre dead wrong.

No one is immune from making financial mistakes, having poor judgment from time to time, or simply procrastinating doing what they know they need to do. The fact that youre reading this e-book means that youre ready to take responsibility for your financial health. I know that once you get into financial debt, its often easier to fall further behind than to dig yourself out. But no matter what your situation, or how or why you got into debt in the first place, I have good news: you can get out of debt. Ill show you exactly how to do it.

If you listen to the Money Girl podcast or read articles on the blog, you know that my advice is always realistic, current, and to the point. You can expect the same here. My objective is to provide you with an effective 10-step plan for getting out of debt starting right now. This e-book wont just get you out of debt; itll also help you live debt-free for good. I urge you to embrace my 10 steps with a can-do attitude and to implement each one as quickly and thoroughly as possible. The cost of staying buried in debt is simply too high. The toll that unmanageable debt can take on your finances, health, and relationships can be astronomical. Here are the ten steps that Ill guide you through in this program:

STEP 1: Assess Your Finances

STEP 2: Make A Debt Reduction Plan

STEP 3: Reduce Your Short-Term Debt

STEP 4: Reduce Your Long-Term Debt

STEP 5: Create A Spending Strategy

STEP 6: Eliminate Expenses & Save More Money

STEP 7: Reduce Your Taxes

STEP 8: Manage Your Credit Score

STEP 9: Protect Yourself

STEP 10: Stay Out of Debt Forever

So lets get started! The first step on any journey is to assess the situation. You have to be clear about where you are right now and where you want to go. That may sound like clich advice, but a financial plan thats implemented without a holistic view of your current financial reality is likely doomed to failure. I want your actions to be rewarded with positive results. So dont skip step number one, which is to assess your finances.

STEP 1: Assess Your Finances

This fundamental step can actually be the most difficult to accomplish for many people who get buried in debt. Why? Because in some cases its actually the reason theyre in debt in the first place. Theyre out of touch with their personal finances. In other words, they havent been monitoring the inflow and outflow of their money as closely as they should. I hear from people who never look at their bank statements or have no idea how much they have in savings or in student loans. I understand that for many, money management is about as exciting as watching grass grow. If money management isnt something you enjoy, consider my perspective. I look at managing my money as if it were a part-time job. The time you spend monitoring your finances will pay off. You can make real money by cutting expenses and earning more interest on savings and investments. Id challenge you to find a part-time job where you could potentially earn as much money for just an hour or two of your time each week.

In step six well cover much more about great ways to eliminate expenses and save money. But the first priority in assessing your financial situation is to get organized and to create a Personal Financial Statement or PFS for short. Ill tell you exactly how to create yours in a bit. Youll need your PFS to accomplish steps two, three, and four in this plan for dealing with your debt, so be sure to make it a priority.

Your PFS is an important financial tool that everyone should create and update on a regular basis, perhaps annually or quarterly. Its the best way to get a complete view of your current situation and should be your financial reality checksomething like stepping on the scale if youre watching your weight. Each time you update your PFS, the purpose is to calculate your net worth, which tells you a great deal about your overall financial health.

What exactly is net worth? you may be wondering. The definition of net worth is summed up in a very simple formula: net worth equals assets minus liabilities. Okay, now lets drill down further to define assets and liabilities. Your assets are things you own that have real value, such as cash accounts, stocks, bonds, real estate, vehicles, personal belongings, and money owed to you. Your liabilities, on the other hand, are the opposite of your assets. Liabilities are your financial obligations to others. They could include a mortgage, car note, credit card debt, or the $50 you owe your neighbor for losing a bet. When you subtract your total liabilities from your total assets, youve figured your net worth. Its really that simple. And yes, it will be a negative number if you owe more than you own.

Take a look at a sample Personal Financial Statement on the Money Girl section at quickanddirtytips.com . You may have more or less information to list, but your goal should be to make it a complete and accurate record. I recommend that you use a spreadsheet format such as an Excel document or a free Google Doc at docs.google.com .

To create your PFS, start with your assets by listing them on separate rows from highest to lowest in value. If your home is your largest asset, for example, list it first. Tab over to a column to the right and list each assets estimated value. Try to get as close as you can to an accurate value, however, you can always revise your estimated valuations at a later time. For now, catalog your possessions and accounts that have monetary value.

Instead of taking a lot of time to list many smaller assets individually, try lumping them together in categories. Include a ballpark estimate for the value of your furniture, antiques, artwork, and collectibles, for example, under a category called household possessions. Include computers and televisions under an electronics category. The idea is to consider what you own that would have real value if you sold it today. Remember that the market value of most tangible assets is usually lower than their replacement value. For example, if you paid $2,000 for your eight-year-old computer, you probably could never sell it today for $2,000. So its best to be conservative with your asset valuations.