Millions of people feel the stress of being in debt everyday. If you are one of these people there are seven easy steps for eliminating your debt. One simple step at a time, you can ease that stress while working towards financial freedom.  

Seven Baby Steps To Getting Out Of Debt

Step 1: Emergency Fund - This is the time to set aside $1,000 for an emergency fund.  This might sound silly if all of your extra income goes towards paying off debt, but it can be a lifesaver when the unexpected happens. When your car needs new brakes, your water heater goes out, or any number of life’s surprises happen we typically have to pull out the credit card to pay for those expenses. This emergency fund is there to act as a cushion and to help you avoid going into further debt.  

Step 2: Debt Snowball - In this step make a list of debts owed from smallest to highest.  You will quickly notice the snowball effect which gives you small victories. These small victories give you confidence which helps to not feel overwhelmed. It also will keep you motivated towards moving down your list, eventually crossing off the big ones you never thought could be possible to eliminate. When you tackle the small, more manageable debts first, you are snowballing your way towards a debt free future.  

Step 3: Start Saving - After you have tackled a few debts, gained some financial confidence, don’t think it’s time to start investing just yet. Instead, take the extra money you have each month and start saving it until you have 3 to 6 months of income. This seems like step one, and it is in a way. But really you are completing your emergency fund. When an unexpected event happens, no matter how big or small, you will be ready to handle it with out even thinking about putting it on the credit cards.

Step 4: Time To Invest – By the time you’ve reached step 4, you should have no debt payments aside from your house payment and your emergency fund should be full. Now it is time to invest 15% of your household income. While it may seem like a large percentage of your income, this will help to fund the years after you retire and are no longer earning a regular salary. Notice that this step comes before saving for your kids college. No one is going to give you a loan or grant for retirement

Step 5: College Funding - By now you should be investing the 15% of your annual income.  College is expensive and it is vital to have a goal to avoid going into debt. When you consider educational investments avoid; Insurance, Savings Bonds, Zero-Coupon Bonds, and Pre-Paid college tuition. These programs offer little growth and low inflation rates. Education Savings Account plans are the best ways to save to pay for college tuition.

Step 6: Pay Off The House - Step 6 is a big one: paying off your mortgage. By this step you will have worked towards long and short term investments and paying off debts, so it’s time for the finale, finally owning your house outright.

Step 7: Build and Give  - Now that you followed the last 6 steps, you should be debt free by Step 7.  After doing a little debt free dance, it is time to continue to build your wealth.  Start thinking about inheritances, investing more, and giving back.  This will be the final step that you will continue through out your life.  Your new life of living debt free!  

Timothy Ng is an experienced personal finance writer, specialising in credit card comparison. Check out his guide to best credit cards where he will step you through the process of finding the best credit card for your financial situation.