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7 Steps to Get Out of Debt

Nelly wanted to pull her hair out. She realized how important it was to get on top of her finances. But she just didn't know where to start. Should she pay off her credit card bills, start an emergency fund, or put money in her retirement account? Just thinking about all of this made her want to crawl into a hole and hibernate.

Nelly is not alone. The vast majority of Americans face competing demands on their money. While each person's situation will be unique, here are some general guidelines that can help you think about the best way to get started on the path to financial strength:

Step No.1: Make the minimum required debt payments on all of your outstanding debt --  This is absolutely vital to protecting your credit score.

Step No.2: Save $2,000 as a "starter" emergency fund -- According to a study by The Consumer Federation of America, this is the average amount of "unexpected" expenses an individual faces in a given year.

Step No.3: Contribute to your employer-sponsored retirement savings plan up to the maximum point of your employer's match -- This is literally free money, so do all you can to take advantage of it.

Step No.4: Build up your emergency fund (the one you started in Step No.2) to three to six months of your expenses (i.e., your absolute essential needs) -- The one thing in foundation life you can expect is the unexpected. This fund will give you the financial flexibility to roll with the punches.

Step No.5: If you have any credit card debt, pay more than your monthly minimum payment -- Paying off credit card debt is one of the best investments you can make in your financial future. Increasing your monthly payments according to the schedule below will dramatically reduce the time it takes to rid yourself of your debt.

Your additional credit card debt payment every month should be at least $50 to $150.

If your debt is:

-- $5,000 or less: Pay at least an extra $50 every month.

-- Between $5,000 and $10,000: Pay at least an extra $100 every month.
-- More than $10,000: Pay at least an extra $150 every month.

Note: Pay this extra amount on your debt with the highest interest rate first.

Step No.6: If you are ready to buy a home, it's time to save for a down payment. Your home down payment is one of the largest "big-ticket" items you'll ever make so you'll need to make it a savings priority.

Step No.7: If Step No.6 isn't relevant because you aren't ready, don't want to, or have already bought a home, then keep saving for your retirement. Remember that the dollars you save early on for your retirement are the most powerful as they have the most time to grow for you. As we discuss in Chapter 9 of our new book, "On My Own Two Feet: A modern girl's guide to personal finance," there are two special types of tax-advantaged retirement accounts (an employer-sponsored retirement savings plan and an IRA) that you can use to "super-size" your retirement savings.


We hope you find these steps helpful as you navigate your personal financial road to financial success. As you utilize them, remember that they are rough guidelines that need to be tailored to your unique situation. At the end of the day, only you know what's best for your personal situation. That said, with this map in hand, you will be well equipped to navigate the competing demands on your money. This in turn, will help reduce the level of financial stress in your life. Here's to your living from a position of financial strength.

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