5 Habits to Change Before You Get out of Debt

Prepare yourself for a debt-free life

Going from deep-in-debt to debt-free isn't a quick or easy process, but it's doable. It starts with changing the way you think about debt and the way you approach your finances in general. If you want to get out of debt and stay out for good, these are some financial habits you must change.

Face Your Debt

A woman worried about debt sitting on the floor with stacks of bills and receipts spread out around her

David Sacks / Getty Images 

The first step is to figure out how much debt you have and how your debt is impacting your finances. One of the quickest ways is to measure your debt-to-income ratio, a number that tells you how much of your income goes toward paying your debt. High debt-to-income ratios indicate that you're overwhelmed with debt. You might not need a calculator to tell you that, but seeing the facts and figures will help you come to terms with how much debt you really have.

The 20/10 rule is another guideline to keep your debt management under control. The ratio measures the maximum amount of your annual and monthly income to allocate towards debt.

Stop Taking on New Debt

When you're ready to conquer your debt, your credit card habit will be the hardest to break, especially if you've been relying on credit to make ends meet. However, getting out of debt for good requires you to stop taking on any additional debt—including new credit card purchases—and start living within your income. It will be an adjustment, but one that's well worth it.

Start a Budget

Having a budget gives you a plan for spending your money and ensures you're using every dollar intentionally. You may feel like you're doing fine managing your money without a budget, but to get out of debt, you'll have to take your money management to the next level.

There are more than a few benefits to making and using a budget to manage your spending. A budget will help you make the best use of your income, find leaks in your spending, and put together a plan to pay off your debt. The sooner you create a budget, the more control you'll have over your money.

Live Within Your Means

Many people wind up in debt after consistently spending more money than they were bringing in. Theoretically, it sounds impossible, but if you factor in credit cards and loans as spending instruments, you'll see how easy it is for your spending to exceed your income month after month.

If you want to pay off your debt, you'll have to reduce your spending below your income so you'll have some extra money to chip away at your balances. That may mean cutting out some of the frills you enjoy, but you'd be surprised at how quickly and easily you can adjust your lifestyle.

Avoid Disguising Wants as Needs

It's easy to convince yourself that you "need" to purchase a new tv or that you "need" to go on vacation. The truth is, there aren't that many true needs in life. You need food, shelter, clothing, transportation, and things like that. You want steak, a nice house in the suburbs, designer labels, and a luxury car, for example.

Part of living within your means involves saying "no" to some of those nice-to-haves that stand in the way of your debt-free life. It also means avoiding the tendency to call something a need when it's really just a want.

Paying off your debt requires changes in the way you spend and the way you think about money. Getting rid of bad habits makes it a little easier to pay off your debt.