The switch from a consumerist mentality to a thrifty one is not easy. The first step usually is to understand the basics of borrowing and why you should strive to only get into debt when it is necessary; and only only borrow the needed amount. If you keep in mind the following pointers, you should be on the right track:

• When you take a loan, you will be repaying it with your future income
• The longer you wait to reimburse your debt, the more you end up reimbursing
• Credit cards and other unsecured credit are the most expensive credit you can get
• When you get into long term debt – i.e. car or house financing – your early instalment are always used to repay interest first, principal second
• You should never use more than 35% of your take-home income to reimburse debt. This 35% includes paying off your car and your home.

Stop the bleeding

The first thing you need to address is stopping your debts from growing. Use your budget, track your progresses, and make sure that your expenses match your income. If it does not already, you are creating debts; so review your figures, and do your best to make it work; earn more / spend less… whatever you prefer as long as it gets back to sustaining your lifestyle.
One of your budget line is allocated to your debt-repayment; it should covers your minimum repayments, plus, ideally, some extra reimbursement. That extra can be used in two very different ways to get rid of debts.

The financial way

If you are a very logical and methodical person, you should pay off your highest interest debts first. In the long run you will pay lesser interest rate than if you do the contrary.

• Order your debts by interest rate
• Pay all your minimums payments
• All of the remaining money should go to your highest-interest rate one
• Once you cleared the highest-interest rate debt, your money goes to the next-highest-rate one.

The psychological way

If you need to see results quickly, you shoud attack your debts by reverse balance order. This is what Dave Ramsey called “the Debt Snowball method” in his book The Total Money Makeover. His concept is simple; you should attack your debts from the smaller-balanced one to the higher-balanced one. This will help you achieve quick-results, and help you stay on track.

• Order your debts by balance
• Pay all your minimums payments
• All of the remaining money should go to your smaller debt
• Once you cleared the smaller debt, your money goes to the next-lowest-balanced one.

To each his own. What is important is that you stop creating debts, start reimbursing more than the minimum, and stay on track. It is not an easy process and it is a lengthy one. So good luck and keep track of your progresses.