There’s a lot of discussion around optimizing your debt. Figuring out which order to pay off debt, keeping your emotions in check, minimizing interest, moving money around… the reality is that these aren’t solutions to the debt problem; in fact they are hindering your ability to get out of debt!
Here’s the strategies I’m referring to:
- Deciding if you should roll your credit card balances into your home equity line, exchanging unsecured credit for secured credit and vice versa.
- Worrying that if you consolidate your loans, you will charge your cards up again.
- Debating whether or not to pay off the low balance first or the highest interest rate first.
- Calling to lower your interest rates or ask for other forgiveness.
- Evaluating Creative Debt Reduction Strategies .
- Deciding whether or not to contribute to retirement or debt reduction first.
- Confusing debt with some kind of emotional attachment.
The Real First Step
All these things are fine-tuning the debt reduction plan. The number one way to get out of debt is to change your spending habits. You must live within your means. If you are still doing the things that built up the debt in the first place, stop! The biggest financial return is not incurring additional debt.
All these strategies are actually very helpful steps to evaluate to help reduce debt. However, they should only be applied after you have the problem that got you into debt in the first place solved. Otherwise it’s like bailing out the Titanic with buckets!
Take a look at your debt and determine exactly what you bought. Are these needs or wants? Make a commitment to yourself that wants will no longer be financed. Commit to not add anymore debt. Once you bring your spending in line with your income, then you can optimize your debts to get rid of them faster.
Once you are ready here’s some great resources:
- Industry Report: Should I use a Home Equity Loan to pay off my debt? 
- Free Money Finance: Why You May or May Not Want to Consolidate Your Loans 
- Credit Withdrawal: All I Want for Christmas are Lower Credit Card Rates 
- Paid Twice at the No Credit Needed Network: Interest Order Vs. Balance Order