If you have huge debts you need a solid plan to tackle it all. The best system is a simple step-by-step plan that keeps you out of overwhelm:
Find out how much you really owe. Look at all your bills and read a copy of your credit report. What do you owe, to whom, and by when? Make a list.
Drum up some support. Debt is stressful and having someone to talk to is very useful. Build a support network of friends and family you can turn to as you pay down your debts.
Budget. You need to keep track of what you spend so that you can funnel more towards your debts until they are paid off.
Start an emergency fund. Don’t just put every penny towards your bills. Set aside at least a few months’ worth in a savings account. Otherwise, you’ll just end up in more debt with the first emergency.
Cut spending, increase income – or both. If the debt is bad, you may need to take a second job or stop all unnecessary spending for a while.
Consolidate only if you can avoid new personal loans and credit card charges. Keep in mind that consolidation will only work if you have good enough credit to get a decent interest rate and the discipline to stop all new debt completely.
Dip into savings to pay down debts, but avoid tapping your emergency fund, retirement plan, or home-equity loans. Unless you really nip your debt habits in the bud, it’s easy to deplete your long-term security net and get into even bigger debt all over again.