(Updated January 2015)

Getting out of debt can be a challenge. It's no wonder the airwaves are filled with advertising that promises solutions for people struggling with debt. Finding the right strategy, however, can be challenging.

Many people turn to get-out-of-debt services and credit counselors in the hope of a "magic bullet" that will solve their debt problems for them., The Federal Trade Commission has cracked down on and prosecuted many so-called credit counselors who do little more than put money in their own pockets while putting their clients in deeper financial trouble.

While there are legitimate service providers in this area - and the Department of Housing and Urban Development maintains a list of accredited debt counselors, most of them affiliated with non-profit agencies - getting out of debt is something you can do on your own. It isn't exactly rocket science - it's just a matter of coming up with a commonsense plan and sticking to it.

With a little discipline, the following five steps can help you create a "Debt Management Plan."

Be realistic and analyze the situation

The first step is to analyze why you're in debt. How did it happen? Was it due to an unforeseen financial emergency, such as the loss of a job, a medical crisis or a divorce? Did you fall into a pattern of spending more than you earned, gradually piling up more and more debt over time? Do you tend to make occasional major expenditures that blow up your budget, such as a vacation, piece of furniture or special events such as a trip to a distant family wedding that you just can't miss?

If it's the first of these, a disciplined plan to gradually pay off your debt over time should suffice. However, if you've lost income due to the loss of a job or reduced earnings, you need to come to terms with the reality of your new situation and adjust your spending accordingly.

Spending more than you earn can be a sneaky problem. Many people just won't admit to themselves that they're doing it. They may have spending patterns that seem to fit their monthly income, but easily get knocked out of whack when an occasional major expense, such as car repairs, crop up. Or they make exceptions to their budget for "special" situations such as the holidays but don't curtail their spending afterward to adjust for it.

If you find yourself gradually sinking deeper into debt, do some additional soul searching to correct the bad habits that led you into debt in the first place and identity just where your problems lie.

Track your expenses for a month

It's the only way to see what comes in and goes out. The answers may surprise you. How often do you simply decide to go out for dinner rather than fix a meal? Are you buying your clothing haphazardly, rather than looking through your wardrobe and decided what you need each season? What are you spending on groceries? Small, spontaneous expenditures, such as four-dollar lattes on your break and five-dollar microbrews after work, can really add up. And don't forget your electronics habit - how much are you spending for a smart phone, Internet service and cable or satellite TV? You may be stretching your budget more than you thought.

It's also important to look beyond your monthly expenditures and identify major irregular expenses, those that may only occur a few times a year. This might include car and home repairs, dental bills, vacation costs, the holidays, etc. - things that don't show up in your monthly budget, but are still part of your annual spending. Recognizing that these must be anticipated and planned for is a big part of getting your debt under control.

Create a budget

Itemize your fixed expenses, and draw up spending limits for variable items like food, clothing, and entertainment. Can you find a way to fit your expenses into your salary without changing your spending habits or increasing your income?

People who don't follow a regular budget tend to buy on impulse and purchase a lot of things they don't really need. When you put yourself under the discipline of a budget, you'll find yourself examining individual expenditures more closely, asking yourself if you really need something you're thinking of buying. Surprisingly often, you'll find out the answer is no.

Reduce your spending

Small expenses add up quickly. Stick to the budget you develop, even if it's uncomfortable at first. Remember, if your habits were working, there wouldn't be a financial crisis to deal with in the first place.

Look for places to economize. Can you save money by consolidating your Internet, TV and/or phone service? Can you scale back to a more economical plan? What about other entertainment? How often do you dine out, or go out for lunch when you're at work? What do you spend on recreation?

How much are you spending on gasoline and travel? Are you making special trips for shopping or to run errands, or can you schedule those tasks efficiently so you don't have to make extra trips for them?

A key thing is to identify the triggers that cause you to overspend. Maybe it's clothes shopping, maybe it's ordering carryout or going out to eat when you don't feel like making dinner, maybe it's tickets for concerts or shows that sound appealing when they come along. If you recognize the things you overspend on, it makes it that much easier to control that spending when the temptation occurs.

Create a plan

Perhaps you can consolidate debts by tapping into home equity. There are bad credit mortgage loans that offer you a mortgage refinance which enables you to convert some of your equity into cash. Or, you could take out a second mortgage-a home equity loan or a home equity line of credit (HELOC), if your existing mortgage rate is too good to touch.

Debt consolidation simplifies your finances, will most likely lower your monthly payments. Plus, it's a great way to rebuild a damaged credit history.

You can also look into reorganizing your debt, perhaps by negotiating lower interest rates with some of your creditors. In any event, you want to pay off your highest interest bills first - make the minimum payment on your other bills to protect your credit, but put whatever you can into paying off your debt with the highest interest rate first, then start on the next-highest one. That's your most expensive debt.

Start working on your plan today-there's no time like now to become a new you. And that's something you'll be happy to advertise.

Published on January 25, 2007