Assess Your Situation

• Calculate the flow of money each month. First, total up all your income. Then add up your unavoidable or fixed expenses, such as rent and minimum debt payments. Finally, add up all your optional or varying expenses, such as clothing.
  
  

Make a Realistic Budget

• Create a budget that covers all the essentials, including food, insurance, rent or mortgage, minimum payments, utilities and gas. Then include a reasonable amount for flexible expenses such as entertainment or clothing.
  
  

Create a Surplus

• Eliminate or reduce unnecessary expenses until you achieve not only a balance, but a monthly surplus. For example, look for more affordable car insurance, cut out restaurant meals and reduce spending for entertainment. If cutting extras isn't enough, consider moving to a cheaper place or selling a car. Find ways to increase your income, such as working overtime or getting a part-time job.
  
  

Get Lower Interest Rates

• Reduce the interest rates on your loans. Refinance to a lower-rate mortgage, and move credit card balances to a lower-rate card. Call your lenders and ask them to reduce the rate on your existing card, or open a new credit card account with a low rate.
  
  

Stop Charging

• Stop adding to your debt. In her book "Making the Most of Your Money Now," finance author Jane Bryant Quinn calls this the most important step to breaking the debt cycle. If you keep on using credit cards, the balances will never fall to zero. Don't take on other debts, such as auto loans, either.
  
  

Retire Debts Early

• Use your budget surplus to pay off your debts early. After paying the minimum on each loan every month, put extra money on one debt at a time until you have paid them all off. In one popular method, you pay off the debt with the highest interest rate first, and then the next highest, and so on. This method saves the most money in interest. Another option is personal finance expert Dave Ramsey's "debt snowball," in which you pay off the debts in the order of the smallest balance to the largest. This method has the psychological advantage of retiring individual debts more quickly, creating the desire to build on the momentum.
  
  

Accumulate Savings

• To stay out of debt permanently and live debt free, you need an emergency fund for unexpected expenses. Your beginning goal should be to have $500 to $1,000 in an accessible place, such as a money market account. Ramsey recommends saving your first $1,000 even before beginning extra payments on your debt so that an unexpected expense doesn't add to your debt. Eventually accumulate enough in emergency savings to live three to six months so you can stay debt-free even if you lose your job.