This is the fifth of nine basic steps for setting effective New Year’s goals to get out of debt. You can share your debt resolution with others here.

Of all the posts in this series, this is the one I’ve been dreading as it’s not so easy to compress what could fill books into a single post.  But I’ll give this a go, counting on readers to forgive me for omissions.

Did you know that 65% of people who claim to have a goal to get out of debt never create a plan?  How many of these do you think are successful?  I don’t have any stats on this, but you can imagine that the success rate is pretty low.  Without a detailed action plan, there’s simply nothing there. Don’t be part of the 65%.

Yesterday, we talked about how to set SMART goals for getting out of debt.  Creating a plan for getting out of debt is simply the process of creating a series of SMART goals around all aspects of your debt.  An effective plan will utilize SMART, be efficient in reducing your debt, leverage all means to determine success, and still permit fun.

So here we go with a series of steps that, when put together, constitute an effective plan for getting out of debt.  Each of the steps described below is actually a series of actions that we will leave for you to apply as you see fit.

1. Quit spending on credit cards.  We covered this in an earlier post [hyperlink], but it’s worth repeating:  you can’t get out of debt while continuing to spend on your credit cards.
2. Create a plan for paying off your current accounts.  For this, use a basic snowball approach:
   1. Set a monthly payment amount.  Determine how much you can apply to your debt each month.  Start with the combined total of your current minimum payments and add any additional amounts that you feel you can afford.  Commit to holding this amount constant and paying this total amount to your debt each month.
   2. Allocate payments to your Target Account.  Each month, make the minimum payments on all accounts except for your highest-interest account.  Make this your Target Account, and apply any excess funds each month to your Target Account.  As you gradually pay down your credit cards, you will free up extra cash that you can use to apply to your Target Account.  Use your system for tracking your payments each month to determine what this amount will be, as it will increase each month.
   3. Move to the next account.  After you pay off your first account, don’t decrease your monthly payment-continue with your constant monthly amount and allocate all excels funds to the next highest-interest card, you new Target Account.
   4. Don’t fall into the minimum payment trap.  Credit card minimum payments will decline over time as you pay off your balance.  If you pay only the minimums, it can take 14-20 years to pay off a card.  If you hold your balance constant on an individual card, it can take as little as 2.5 years.  If you utilize a snowball method on several cards, it can take less.
   5. Create a tracking system.  Create a simple approach to track your progress.  This should let you monitor individual account balances, new purchases, APR, minimum payment, and actual payments.  Monitor your purchase to maintain control on your spending and track your total actual payments to compare to your commitment.
3. Utilize assets wisely.  If you can, consider selling little-used household items to raise cash to apply to debt.  If you have excess savings, apply this to your highest-interest account.  Although it may make sense to tap additional assets with a 401(k) loan or a home equity loan, this should only be done if you are secure in your job and there is little chance of needing to declare bankruptcy.
4. Lower interest costs.  Renegotiate your rates with credit card issuers by calling and threatening to close your account-50% of the time they will agree to lower your rate.  Utilize balance transfers and introductory rates or refinance your mortgage if you can.  If you do lower your rates, be sure to maintain the amount of your monthly payment commitment.  Use the extra money to get out of debt more quickly.
5. Cut expenses.  Examine monthly expenses to see if anything can be reduced.  Maybe you can do with a cheaper cable package or without a cell phone.  If you can free up expenses, increase the amount of your monthly payment by the amount you’ve saved so that you make as much progress as possible on your debt.

There are many ways you can create an effective plan to tackle your debt.  However you decide to do it, identify a few actions in each area that you can take and set definable goals.  Set interim goals for paying off individual accounts.  Above all, set a monthly payment that you can commit to each month and track your payments and your progress.  Half the battle is just tracking your results-your behavior often follows.

As you start on this process, you’ll notice that it’s hard at first.  In the next post, we’ll discuss how your family and friends can help you be more successful.

See you then.

Hope you’re having a great new year.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.