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It is time. You are now ready to start paying off debt. So what do you do first?

You are now ready to start paying off debt. You are not going to let anything get in your way this time. You have reviewed all your accounts and know how much in loans and credit card debt you need to pay off. The question is, what do you do first? Here are two (2) things you MUST do to pay off debt successfully.

Get a better understanding of your income and spending habits with a budget.

The mention of creating a budget makes many people stop reading or even run the other way, but it is the foundation and starting point to getting out of debt. And it sure is not a complicated budget either.

Start with the simplest version of a budget—write down your take-home income (what gets automatically deposited into your account or the amount your check is made out for) and then start collecting a list of your expenses. Consider having a free consultation with the Law Offices of Ronald E. Stadtmueller, a get-out-of-debt Law Offices in San Diego. We can help you gather necessary expenses, such as housing, utilities, loan payments, etc. In short, we perform an in-depth evaluation of your finances. It can be easy to estimate all your expenses. Still, it is well worth the time to look up the actual costs of everything (as you could be accidentally underestimating your payments). If your expenses vary from month to month, average your last three months of fees to get a better picture of your actual costs. 

Relatively, our team at the Law Offices of Ronald E. Stadtmueller believes that you deserve relief when you are being crushed by overwhelming debt in our struggling economy. We fight for your right to start fresh and free you from unmanageable debt and irritating creditors. Trust us, for we draw on over thirty years of experience guiding clients in California through the bankruptcy process. Allow our attorney to help you regain a firm financial footing. You can also check out this step-by-step budgeting guide to help you get started (This beginner’s budgeting guide is also an excellent opportunity for experienced budgeters to take a fresh look at their budget).

Step 1. Gather all of your financial documents and logins. Before listing your expenses, collect your most recent bills, receipts, emails, bank statements, pay stubs, and other financial documents that help you understand your costs. 

Step 2. Start sorting your expenses and income by frequency. Create a pile (or spreadsheet column) for each of the following expense types: weekly, monthly, quarterly, annual, and one-off expenses. 

Step 3. Now you can start filling out a budget worksheet. Whether you use an online tool or app or want to try out a budget worksheet like this one, it is essential to get your expenses and income listed on paper. 

Step 4. Highlight the areas that surprised you. We all have a weakness when it comes to our budgets. But writing it all down may open your eyes to expenses (or the size of the costs) that may have been off your radar.

Step 5. Make some calls and update your subscriptions. After you identified your current spending habits, outlined your goal budget, and highlighted some areas you could trim expenses, it is time to take action!

Step 6. Consolidate your debt. As a bonus, you will only have one monthly payment due date to remember!

Step 7. Research your options and change things up. Take some time to review each of your expenses to see if switching providers—or researching options on their website—may lower your monthly bills.  

Step 8. Plan for fun. Are you a road trip lover? Work it into your budget! Planning for a bit of fun each month is good for your mental health and will help you stay on the budget later. 

Step 9. Find an accountability partner. Whether it is your spouse, sibling, best friend, or neighbor, find someone interested in fine-tuning their budget and help each other stay on track. 

Plan for the unplanned by building an emergency fund.

After establishing a budget and knowing how much you need to cover your monthly expenses, it is time to work on an emergency savings fund. The size of your emergency savings fund will vary based on your costs, but a general rule of thumb is to set aside a thousand dollars ($1,000) in an emergency fund before paying off debt. After you have $1,000 set aside, you can start tackling debt, and you may even want to set aside a little in monthly savings to grow your emergency fund to a point where you have three to six months of living expenses saved up for a rainy day.

Finals Thoughts While waiting to start paying off debt may not be what you want to do, knowing what you must work with by budgeting is key. It can help you identify some causes of debt that you must address first. And an emergency fund can help you from going further into debt by covering unplanned expenses with your savings rather than a credit card (which will cost you much more in the long run through interest).

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