How to get out of debt

Debt can be a touchy subject for many. There's no question that debt holds people back from achieving their financial dreams. So what should be done about debt if you have it? The short and obvious answer is to pay it off. But this is much easier said than done. Here are some practical ways to actually make progress on paying down your debt.

1. Stop spending more than you earn

The first step to getting out of debt is to stop spending more than you earn. Consumer debts should be avoided at all costs. If you need to close down your credit card accounts because the balances seem to be growing each month, do it.

2. Assess your financial situation

Get a full picture of your financial situation. Your life is a business and your personal balance sheet shows your financial health. Assess what assets you have (cash, investments, house, etc.) and what liabilities you have (mortgage, credit card, car loan, etc.). Subtract your liabilities from your assets and that will give you your net worth. Your net worth may be negative, meaning your liabilities are larger than your assets. If this is the case, you have some work to do. Start by paying down your liabilities. If your net worth is neutral or positive, you are on the right track.

Note: There are apps that can easily track your net worth. Personally, I use 'Personal Capital' which links to my bank, investment, and debt accounts and tracks my net worth on a daily basis.

3. Create a monthly budget

Nobody likes to hear the word budget, but it's a critical component for successfully paying off debt. Giving each dollar a purpose will allow you to drive your money rather than allow it to drive you. It's probably easiest to use an app such as 'Personal Capital' to set your budget and track your progress. Identify where your money is going each month, look for the high-spending areas, and make cuts. Maybe you're spending a significant amount on bars and restaurants each month. Make progress by limiting yourself to eating out once a week or cutting back on bar tabs.

If you want to make significant reductions in your spending, you'll likely need to make sacrifices regarding housing, transportation, and food. These three categories are the largest monthly expenses for most Americans. Consider downsizing your home or moving to a less expensive neighborhood. Or better yet, move closer to your place of work. You'd be surprised how much money you could save by cutting back on your commute. Food is another areas that eats up a significant portion of people's monthly budgets. Time to stop grocery shopping at Whole Foods and start going to Wal Mart.

4. Work the debt snowball

The debt snowball is a tried and true tool for efficiently paying off debt. To use the debt snowball, identify all your debts and list them from smallest to largest. Pay the minimum payments on each of your debts each month. Any extra money in your budget is paid towards the debt at the top of your snowball (smallest balance). Once the first debt is paid off, take the amount you were paying towards that original debt and pay it towards the second debt in the snowball, and so on and so forth. With each debt crossed off your list, you'll gain confidence and start to build momentum, hence the name 'debt snowball.' Disregard the interest rate on the debts at this time, as the psychological benefits of paying down the smaller debts first will keep you motivated.

5. Increase your income

Increasing your income can get you to your goal of debt freedom faster. There's truly so many ways you can increase your income. First, is there a way for you to increase your income at your current job? Try asking for a raise, working longer hours, or gunning for a promotion.

If a raise isn't in the cards, try looking into starting a side hustle. Drive Uber/Lyft, turn your hobby into an income source, work a second job, freelance on Upstart, coach sports, blog, or even look for gigs on Craigslist.

To make significant increases in your income, you may want to consider looking for a higher-paying job. Revamp that resume and start applying for jobs that interest you. Consider a position that is scalable. A sales-focused or commission-based role is a great way to scale your income.

7. Breathe

You can do this. Take a deep breath and achieve your goal.