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Giving Thanks for Getting Out of Debt

They say that time heals all wounds. Perhaps so, but 11 years hasn't made me forget what it was like to be stuck in debt. I still give thanks for finding the way out.

Back then, my finances were a mess. I was just finishing up with law school and was about to start my first job at a law firm. But like many students, I owed money in more directions than I could keep track of -- student loans, credit cards, even a $10,000 advance on my salary from my soon-to-be employer. All told, I was in the hole to the tune of about $40,000.

Digging my own hole
Looking back, I can see now that there were plenty of things I could have done to prevent my debt from getting so big. I had a nice apartment that was bigger than I really needed. I ate out almost every night. And while those flying lessons I took were a lot of fun, they were also really expensive -- especially on a student's budget.

As I tried to figure out what to do, I realized something fundamental: Being in debt stinks. It felt lousy. I decided I'd do whatever it took to get out of it, and strive not to fall back into debt once I'd solved the problem.

Slow and steady
Just the idea of trying to pay back a large debt is intimidating. That $40,000 seemed like an insurmountable obstacle. But by following a few simple steps, I was able to get started on a plan that eventually got me entirely out of debt.

Cut your interest
Even back then, when balance transfers were just coming into vogue, I was able to move all my credit card debt to my card from Discover Financial (NYSE: DFS  ) , which offered a 0% introductory rate for the first year. Nowadays, plenty of card issuers, including Citigroup (NYSE: C  ) and American Express (NYSE: AXP  ) , offer 0% rates either on balance transfers or on new purchases. Even if you can't find a 0% offer, any reduction from the double-digit rates that most cardholders pay will make repaying your debt a lot easier.

Prioritize
Once you've got your rates as low as they'll go, figure out which debt you should pay off first. For me, my employer loan got top priority, and then I tried to get as much of my credit card debt paid down as I could before the introductory rate expired. Meanwhile, my guaranteed student loans had low rates that wouldn't expire, so I saved them for last. Whether you borrowed from a student-loan specialist like Sallie Mae (NYSE: SLM  ) or a traditional bank like Wells Fargo (NYSE: WFC  ) , your lender will tell you what you need to know to make the right decision on prioritizing your debt.

Pare your budget
When you're getting a real paycheck for the first time, there's a big temptation to go wild with your spending. But if you've already gone a little wild during school, it's a good time to rein in your standard of living and put those extra earnings toward your debt.

Stick with it
Inevitably, there'll be some month when you suffer a setback and don't manage to pay back as much as you'd hoped. Sometimes, you'll even have an emergency come up that pushes your finances back in the wrong direction. But don't lose hope. While it may take longer than you want, getting your debt paid off is the best feeling in the world.

Get help
If you're under a mountain of debt, you can find a way out, too. Get more detailed help from our Motley Fool Green Light newsletter. Foolish experts Dayana Yochim and Robert Brokamp come up with great tips every month that can save you hundreds, leaving you more to pay down those loans. And with a free 30-day trial, you can afford to give it a try.

See how other Fools are giving thanks:


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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