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usually agreed that it would be OK as long as I could pay something.

Gradually, by putting a little more money into the bank each time we had some, not spending any more on the credit cards, and paying only the minimum balance each time a bill came, the balance 30 days from now began to creep up. Eventually it became a positive amount. If this doesn't happen for you, you either need to reduce the amount of money you are spending or increase your income. You won't be able to catch up with your debts unless you are able to increase the predicted balance even a little.

Every time the balance was predicted to be positive, I made a payment to the smallest debt that was equal to the predicted positive balance. This brought the predicted balance down to zero. I knew that all the bills for the next 30 days would be paid, so my creditors would be happy, and I had made an extra payment to reduce the debt a little bit. To begin with, I would rarely see a positive predicted balance, and so I would rarely make extra payments. After a while, I would be able to make them a bit more often.

It is important to try to pay off the smallest debts first, because that means you will have one less payment to make each month. Even though larger debts will accrue more interest, it is not in your best interests to make extra payments to them. If you can reduce the number of payments you make to different companies, you are essentially freeing yourself of the minimum payment for that debt. This reduces your minimum monthly outgoings.

Once you have cleared one of your debts, you can either use the money you would have paid to that creditor for paying off another debt faster, or you can spend that money on non-essential things that you have been missing out on while in the initial stage of clearing your debts. If you can manage to get rid of even your smallest debt at your current rate of paying it back, you will eventually be able to pay back the rest. Whether you use the freed up money for increasing your extra payments or for spending will depend on how comfortable you are with the rate of debt reduction and how happy you are with your limited spending budget. Do what feels right for you.

The most important part of this debt elimination plan is that you track every penny that comes in and goes out. This helps because knowing that you have to add each transaction into the system makes you pause before you buy anything, and think about how it will affect your predicted balance. You must remember to include all your bills and regular payments in the system so that your predicted balance is accurate. If you expect a bill but don't know how much it will be, add the highest probable amount to your system so that it doesn't mess things up when it arrives.

So to sum up:
*Track all transactions, even cash
*Spend as little as possible
*Plan at least 30 days ahead
*Pay only minimum balances
*When you have enough money, make extra payments to the smallest debt
*Don't increase your debts
*When you have cleared your smallest debt, you can start to choose what you do with your money again

Good Luck!

Learn more about this author, Kate Hudson.
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