What do I have to do to get out of debt?
Here are five steps to getting out of debt:
1) Stop using credit. There are many ways to get out of debt. None of them
include incurring more debt by using credit. The only exception to this will be
dealt with later, and involves consolidating debt, not incurring more. Cut up
your credit cards and close the accounts. If you have any unused balances they
are just too big a temptation. Remove that temptation first thing.
2) Create a budget. There are two critical tasks in planning a budget. The first is to take inventory of all assets, but especially your income stream, from all sources. You have to accurately account for all the money you have to meet expenses. The second task is to list all of your expenses. This includes fixed costs like mortgage and insurance, as well as, variable but certain expenses such as utilities, food, and fuel. There is also discretionary spending on clothing, entertainment, gifts and other spoils. Once you have listed and totaled everything in all categories you need to subtract the expenses from the income. If you have a positive difference you are ready to proceed to the next step. If the balance is negative you need to go back and try to find either more income or a way to cut the expenses. Keep working to minimize any negative difference (i.e., spending more than you have coming in).
Video: Why Most Budgets Fail
3) Create a debt repayment plan. If you had a positive balance in step 2, plan
which debt you want to pay off first, and start applying that extra 
amount to
that debt. If you still have a negative balance you should fill out the form on
this page or call the toll free number to start considering some form of debt
consolidation or debt settlement. Debt consolidation or settlement will often
enable you to reduce your monthly payments to the point that you can live and
still meet the payment schedule.
4) Stick with your debt consolidation plan. Even when it’s tough, make your payments. You are repairing your credit history by making those payments, and working toward the day when your income can be used for you rather than your creditors. If you still can’t make payments you may have to do some adjustments to your plan. You may need to sell a vehicle, seek loan modification (there are a number of interesting things going on in Congress that may help there) or sell some other asset. If, in spite of everything you still can’t live on what you make, you may have to consider bankruptcy.
Video: The Truth About Bankruptcy
5) File bankruptcy. If there is no other way to get out of debt you may have to go this route. By choice you should try to see if you can do a Chapter 13 wage-earner bankruptcy. Under this option the bankruptcy court will examine your situation and come up with a plan to pay creditors. It may only give them ten cents on the dollar, or it may give them more, but it will pay them something, and your credit will recover faster. The last resort is a Chapter 7 liquidation bankruptcy. You get rid of all your debt, and all of your non-exempt property. By and large you will have enough to live on, but won’t get to keep pricey toys. You can then begin rebuilding. It’ll take a while, but you will be able to start living debt free.
