First Steps Out of Extreme Debt

When you are extreme debt, the first big steps in the right direction are the hardest.  Even if you feel completely committed to tackling your debt problem, there are just so many areas that need improvement that it is difficult to know where to focus your attention, and at the same time it feels like small changes like not buying that coffee at the coffee shop couldn't possibly dig you out of the enormous hole that you're in.

There is no shortage of good advice on personal finance blogs, or in books.  But reading through the majority of these sources, people are generally trying to eliminate something like $20-50K of student loans, on top of $5-20K in credit card debt.  Few and far between are stories of people in hundreds of thousands of dollars in debt, and still trying to stay afloat.  Perhaps this is because most people who get to this level of extreme debt just don't make it, declare bankruptcy, and pay a dear price. 

Does this mean that the general techniques for debt recover don't apply to those in extreme debt?  No, I believe the same techniques do apply, but since the problem is of a significantly larger scale, the solutions must also scale if they are going to succeed.  Also, it will likely take much longer to recover from extreme debt compared to "regular" debt, so patience and persistence are key.

The first steps you take in the right direction will seem trivial compared to the size of your debt load.  But don't let that be a reason not to take those steps anyways!  Remember, you got yourself into an extreme amount of debt through both small and large purchases, and so you can get out of it the same way, but in reverse.

Here are the first steps that I took:

1. Cut spending on anything that was not really important to me and my family.  This included things like eating out, trips to the coffee shop, new gadgets and home electronics, most new clothing, and house cleaning services.
2. Gave up our second car.  Instead, make more use of public transit, walking, bicycling and occasionally renting a car.
3. Stopped eating out for lunch at work.  Instead, bring leftovers or a quick sandwich from home.
4. Downgraded to basic cable.  No time to watch all those extra channels anyways!
5. Stopped using the dry cleaner for clothing that isn't "dry clean only".  Time to dust off that iron!
6. Switched to regular coffee from premium coffee beans.  Sure, doesn't taste quite as good, but if you experiment with different brands you can get close enough.
7. Started to grocery shop in more than one store, to maximize value from sales.
8. Consolidated as much credit card debt as possible into a new line of credit, with an interest rate of 5.75%, versus the 19% I was paying on the cards.
9. Started to investigate additional income sources, both online and off-line.

Along with all of these changes, I also started tracking my incoming, expenses and savings meticulously every month.  After a couple of months went by, what I found was that I was almost breaking even: that is, I was no longer accumulating new debt, but there was also no progress in paying off any debt.  Also, I was so close to the break-even point, that it didn't take much to push me over the line, and add a little more debt to the pile.

This was discouraging at first, but I decided to think of it as the first step, as opposed to the final solution.  And for a first step, putting the breaks on accumulating debt seemed like a reasonable accomplishment.  The key now, of course, is to take the next step, and then the next, so that we can start seeing some actual debt reduction.