Here are five practical steps on how to tackle existing debt.

Evaluate your income and the four main areas of money use (living expenses, taxes, giving, and debt payments) to ensure you have a positive margin. Many people continue to go deeper in debt because they have no financial plan. They have never determined if they’re living within their income. The first step, then, is to make sure you aren’t accumulating more debt by overspending.

Implement a cash-flow control system that enables you to accomplish your spending plan (see chapter 8). A good control system will help ensure that you accumulate a positive cash-flow margin.

Once you have a positive cash-flow margin, those funds can be used to reduce your debt. As your debt reduces, you have more margin, and the positive cycle continues.

As well as the preceding steps, if you feel you need to do something drastic:
– Sell an asset. This might be a car; a television; or stocks, bonds, and other investments.
– Downsize your house.
– Put your children in public school or homeschool (versus private school).
– Cut up your credit cards. They encourage overspending. Remove the temptation and enhance your positive cash-flow margin.

Warning: Do not consolidate your loans. This doesn’t solve the problem. Consolidation may reduce your monthly debt payment, but it also means you’re not paying your debt off as quickly as possible. Without a financial plan, the extra money that was being used for debt repayment may well be spent in other ways so your debt grows. It’s far better to “bite the bullet” and address your debt problem rather than making it “easier” through loan consolidation and paying less on the amount owed. Debts need to be paid, and the sooner the better.