The golden rule on personal finances is to spend less than you earn. Until you get to that point, your debt will not only be an outstanding problem, but it will also be a growing one. Consider the length of time it took to build up this debt and realise that there is no magic wand. Your debt issues can only be solved through time, discipline and above all, focus.

The most important aspect of getting out of debt is realising how the debt grew and what aspects to your life contributed to the debt for the most part. From there, you can make decisions based on the full facts and not assumptions or speculation. So, with pen and paper ready, let’s get to work.

Step 1: Get a financial plan in place

A plan is like a fitness assessment at the gym; we need to stand back and take a good look at where we are. The number one rule – be honest. There is nothing to be feared; after all there are many people in the same boat.

Draw up a list of your income on a monthly basis including your wages, investments (dividends, interest), social welfare entitlements, income from a rented parking space etc. If some of these amounts vary each month, take the worst case scenario such as your monthly salary without your usual, but inconsistent overtime.

Next, make a list of all your outgoings. This is where the honesty must play a part. You need to consider things such as mortgage/rent, electricity, gas, food, childcare, mobile phone, broadband, travel, entertainment costs, clothing, coffees, gym membership, medication, financial products such as mortgage protection, health cover, income protection, credit card bills, credit union & bank loans and anything else you can think of. At this point, you will find your monthly expenditure exceeds your income and that’s to be expected. That’s the whole reason you have undertaken this exercise.

Your next step is to divide your outgoings into “flexible” and “non-flexible” payments.

The “non flexible” items should include the bills you can’t afford to be without such as rent/mortgage, loans and credit card bills, TV licence, running your car and paying for childcare. The “flexible” items should include the payments you know you can cut back on or do without for an extended period of time. This includes food, utility bills, clothes, entertainment bills, travel etc. You can also look at restricting your unsecured loan repayments such as bank or credit card loans. They are not attached or assigned to your house which means you can’t be made homeless if you default on these.

Step 2: Reduce the cost of borrowing

Credit cards: – there are a number of 0% deals available to many card holders. If that option isn’t open to you, you can look at alternative arrangements with your existing provider. Many credit card companies will reduce your interest rate for a period of time just to retain the business.

Loans: – there are a number of loan options available from your local credit union right through to the bank. I don’t recommend going down the secured loan route as the possibility of defaulting on these repayments may cause bigger problems in the long run.

Mortgage: – while we are all very familiar with the credit crunch and tightening up of credit, rather than switching your mortgage to a new lender, you might be able to consider an interest only facility, a moratorium or extending the term.

Remember, by extending your credit card limit or borrowing extra money in a loan just to treat yourself is defeating the purpose of becoming debt free. Access to new forms of credit in this instance is only encouraged if it means you are reducing the overall cost of credit. Examples include replacing an expensive credit card with a low interest loan. This is not the time for a new wardrobe through additional borrowing.

Step 3: Cut Variable Costs

Back to the beginning! Have a look at that extensive column you drafted with “flexible” arrangements. Go through them one by one and identify ways of doing without or cutting back. There are some excellent suggestions on this blog, ranging from cheaper forms of credit, to simply spending less. Sounds fairly obvious but you’d be surprised as to how many people ignore the simple steps.

Some areas that cannot be ignored are the financial plans you already have in place from your private health insurance, mortgage protection, life assurance, savings schemes, and serious illness cover. There are potentially great savings to be made by closely looking at these.