After figuring out what your monthly expenses are, the next step is to get out of debt. The amount of debt that you have will determine what kind of strategy to take. If the amount is small like a few hundred or thousand dollars, go ahead and pay that off as quickly as possible. There is no good reason to have it around. If the amount is much larger like several thousand dollars, it won't be possible to one shot it.
You only make so many dollars a month and you do need to eat and have a place to sleep. Try to keep your living expenses to the bare minimum. Since you have already looked back at your spending history, you know how much money you spend on groceries, gas, and rent. You also know how much money you spend going to the bar, buying new video games, dates, electronics, etc. If you are in debt to the tune of several thousand dollars, it is important to cut out all the unnecessary expenses. Reduce the amount of times you go to the bar, buying new electronics, going out for dinner, and traveling overseas for vacation. Take that money that you save and use it to pay off your debt.
It is a good idea to keep some amount of money as liquid cash in checking or savings accounts. Life is full of moving parts and you might be faced with some unexpected expenses such as your car breaking down or you getting injured and going to the emergency room. If you don't have the cash to pay for this, you will have to pay for it on borrowed money which means more interest will have to be paid. It is also a good idea to have adequate health insurance (in general and especially) during the period of time when you are paying off debt. It would be a real bummer to be in the process of paying off thousands of dollars of debt to be stricken with hospital bills that add thousands of dollars of debt to your total liabilities.
Chances are, you might have multiple loans to pay. Most likely, you have to make monthly payments on all of them. When you decide send over-payments to pay the debt faster, make sure to pay off the debts that carry the highest interest rates first. Most likely, this will be your credit card debts. You want to pay these off first because a debt with a higher interest rate means you will be paying more interest.
There is on unique debt I want to mention. The interest paid on a mortgage can be written off when you file your taxes if you itemize deductions. Make sure to take this into consideration as the tax impact can make the mortgage cheaper than other debt you may carry.
After all you debts are paid off, the total liabilities of your net worth statement will be zero. After this point, you will no longer have to pay off debt as part of your monthly expenses. you will have a lot of extra money each month as a result.
One thing I want to mention is that people of older generations might advise us to invest in the stock market because your money can get higher gains than the debt you carry and you will have an easier time paying your debt off. This is a risky strategy and I do not recommend this. It is possible to get high gains in the stock market but it is also possible to get high losses in the market. When paying off debt, I would not leave things up to chance. I do not want anyone to be put into a position where they risk bankruptcy.
After you get out of debt, you have a lot of options. The next step is to figure out what you want out of life then make a plan on how to get there.
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