Have you experienced a situation when you received your paycheck, then paid all your regular bills and your credit card bills and your checking account was empty the very same moment? When that happens to you, you are in a serious debt issue and you need to act now.

This is actually what happened to me recently and I realized I must act now before the debt problem becomes worse. When you are in this situation, no traditional advice will work for you. Here are some of the tips, which will not help you out of the circle:

1. Stop using the credit cards and use cash only. This advice will not help you at all. If you end up broke by paying all your bills and debt payments the very next day you receive your paycheck, you are forced to go and borrow again. You are in a vicious circle of paying debt, but borrowing again.
2. Pay more than minimums to get out of the debt. This is actually what gets you in the trouble. If you pay more than the minimum you have nothing left, when you pay minimums, you will most likely never get out of the debt.
3. Use debt snowball strategy. Although this is a great strategy, at this phase it won’t help you. You still have nothing left to perform such strategy and avoid borrowing more money to live on.

So what can we do in this situation to actually get out of the debt?

Budget

This is a very common advice you will hear first. You really need to sit down and create an assessment of all your finances. At first start with your credit cards. List them all down, put down the name of the lender, amount you owe and interest rate you pay. Then list all your other regular bills you have to pay such as utilities, rent or mortgage, etc. Write down everything. If you do not know where your money goes, start tracking them. Create a list in spreadsheet or just in a notebook and track your money for at least three months. Write down everything you receive and spend. Write down a reason for an expenditure as well.

After about three months you should be able to find out where your money goes and do some planning. Find out what expenditures could be cut down and don’t spend the money anymore.

And the most important thing? You must do all this with your whole family. Explain all members that you have a debt situation and that the whole family must help.

Saving or paying the debt off?

Well, if you are in the vicious debt circle, you must stop all leaks in your valet. Saving and investing must go aside. But here again you must sit down and make an assessment what savings must continue and which can be stopped. If you are, like me, saving for an annual expense such as insurance or any other annual bills, see details about this savings here you must continue to do so. However if you are saving for a vacation, you can stop such saving and keep the cash.

Although I hate to say it, investing is another activity you will have to postpone. You still can keep already saved and invested account, but stop all new contributions. Keep the cash.

What about your already saved emergency account or other savings? Keep it. Do not touch it. Stop contributing, but do not withdraw unless such withdrawal is absolutely necessary. You can use the money only as reserves to pay the bills or credit card payments.

Get help, counseling, or refinance

Were you able to find some savings in your budget and savings schedule? If so great, you can skip this portion. If not, you need to go deeper to the bone of the problem. What helped me was a refinance strategy. I applied for several credit cards with zero introductory APR on balance transfers. Many of the cards had up to 18 months introductory rate. Transfer your balances to the new cards. You will be surprised how significant savings you can get with zero interest.

On my Bank of America credit card I used to pay $88 monthly minimum payment. After transferring to a different card my minimum payments dropped to $45 monthly. I suddenly had $43 monthly available.

I also applied for refinancing loans at Prosper and Lending Club. I was able to combine several high interest cards loans into one smaller monthly payment. My original debt on credit cards had an interest rate at 23%, I could get a loan from Prosper at 12%. Huge savings! I also was able to eliminate high payments on my American Express card. Instead of paying $1200 monthly thru their “pay in time” program I now pay only $500 monthly. Huge savings again.

You may also contact your lenders and ask for help, lower your interest rate, refinance thru them or you can contact any of the counseling firms and get help thru them. Your ultimate goal is to release some cash to get out of the debt.

Get a second job

This can be very tough. I did this myself for a couple of months. I have a regular job, working as a mechanical engineer, but I also applied for a night work at our local Walmart. Every day, for four months I went to may regular work at 8:30 am, worked until 5:30, then I went home to sleep. I woke up at 10 pm and went to Walmart for my night shift. I worked there until 8 am and then moved to my regular job. It was very hard and after 4 months I had to quit, but it helped a lot in eliminating my debt.

You can do something similar. Even a short period of time will help you.

Now use the debt snowball plan

Once you were able to release some cash by applying some of the tips above, you should be able to execute the snowball strategy. If you paid more than minimums on all your cards, stop this on all of your cards but one. Chose the card which has the smallest balance and maximize payments to it. Take all your other cards, put them in a Ziploc bag, fill it with water and put it on the bottom of the freezer. Literally freeze those cards. Keep only one card out for emergency (ideally the one which has a zero interest introductory rate).

• Now you should have some money left due to your budget assessment.
• You should have some money left due to debt refinancing.
• You should have some money left due to stopping unnecessary savings and investing contributions.
• You should have some money left due to eliminating more than minimum payments on all your cards.

With that savings you should be able, thru your budget, to find out how much money you need for your regular spending and how much money you can pay towards the debt elimination project.

Be and stay frugal

This is important. Once you go thru all this and save money, do not spend it! I made that mistake once. I refinanced all my debt and that made me think that I was out of the trouble and I could continue in my spending habit. I suddenly could handle the debt and had some cash available, so no big deal. Well, dude, yes it still was a big deal. It was a huge deal, duh! Some benefits I got from refinancing expired and I was exactly where I was at the beginning. I realized I had to start all over!

So do not repeat the same mistake, continue in a frugal life, weight every purchase you need to make before you make it. Although you got some relief, you are not out of the forest yet.

Visualize your debt

If you are like me, you may want to make your debt visual. When I put my debt into a chart or any sort of a graph I become competitive and seeing the chart makes it a challenge in which I want to excel.

Here is my own visualization of my debt:

Having those charts in front of me all the time and track balances every month is helping me to see the debt and fight it effectively. I once again see my situation positively and working hard towards final debt elimination. If everything goes well, I should be debt free in about 2 years.