What with the recent global economic collapse forcing millions of workers out of work and businessmen near to bankruptcy, it is of little wonder that a growing number of people are now stuck with large and unmanageable debts. But we can’t all blame the recession for our high credit card bills and bank loan payments. Most of us got into large debt simply due to poor money management and/or too much spending. Now we need to clear those debts, here are some effective tips on how to get out of debt:

Set Yourself a Monthly Budget. Put a strict limit on your spending habits by sticking to your set budget. The best way to set this budget is to list all your necessities, utilities and monthly bills. Check if your income is adequate enough to sustain such necessities. If you’ve calculated everything and there’s still some extra left over, you can use a portion for other stuff you want (within reason). Save the rest for that proverbial rainy day.

Pay off your high-interest credit cards or consider shifting to one with a lower interest rate. When paying off your credit card balances, always settle the one with the highest interest rate first. Another useful option is to shift to a credit card company with a far lower interest rate. If you have a secure and reliable track record, you should be eligible for any zero interest balance transfers. If you have several credit cards, try to cut them down to only one or two cards. Use one for your shopping purchases and the other for emergencies.

Pay in Cash. Using cash instead of credit cards is a really good way to get to grips with your finances because you won’t be paying any interest charges. Also, if the credit card company has offered you any increase in your credit card limit, always decline the offer – particularly if you think that it is already set over the amount you could easily pay in a few months.

Assess your total living costs. Sit yourself down and reflect on your current living situation. Your mortgage payments, tax payments and insurance premiums should definitely not exceed 33% of your total household income. If they are way above that then it’s time for you to look into having your mortgage refinanced; in addition, try to look for cheaper utility plans and for more affordable insurance rates. You should also learn to cut down on those discretionary expenses. These would include unnecessary expenditures like dining out, splurging cash on a holiday vacation and buying yourself designer clothes.

Avoid borrowing money if you don’t really need it. If you’ll be borrowing money for emergency cases, that’s understandable. However, if you are getting a loan just to whoop it up in Fiji or the Bahamas then you’re just pushing yourself further in debt. If you really need to borrow money then try borrowing from your family or friends. That way, you don’t need to pay high interest rates. Also avoid high interest short-term loans such as payday loans . Such Pay-Day Loans have exceptionally high interest rates and these can bring you to the brink of bankruptcy. These types of Pay-Day Loan are also way too easy to renew – getting yourself trapped into a loan spiral of debt. These loans can also have a negative effect on your credit score. There are alternative options to securing short-term loans like those mentioned above – including borrowing money from family or friends, getting a personal loan or using a credit card.