Five ways to dig yourself out of debt

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1. DIAGNOSE THE PROBLEM

Are your debts the result of a setback like a layoff at work or a health issue, or are you breaking the prime personal finance directive of habitually spending more than you make? With debts due to a setback, you can focus strictly on paying back what you owe. Chronic overspending requires you to address the root cause as well as the effect.

This is where budgeting comes in. Do a Google search for budgeting tools and spreadsheets and use one to track where your money goes every month. At very least, look at your chequing account online and compare money in and money out for a six-month period. Budgeting gives you the information you need to bring your spending below what you earn.

2. TRIAGE

With their 20-per-cent interest rates on unpaid balances, credit cards cause extensive financial hemorrhaging. So direct all resources to paying down credit cards first, and then move onto the next highest cost debt. Consumer loans, student loans and unsecured lines of credit will likely come next. Then look at your home equity line of credit, which is the lowest cost borrowing vehicle around. Don't sweat your mortgage. Keep making your regular payments and put your energy into paying everything else off.

If you have a string of debts on credit cards and elsewhere, consider a debt consolidation. Use your line of credit or get a bank loan to pay off all your outstanding debts. You'll then make one payment per month at much lower rates than your credit cards charge.

3. THINK CARS, NOT LATTES

If you're up to your neck in debt, avoiding fancy coffee drinks won't be enough to make a noticeable difference in your finances. You need to think big – like your cars, for example.

If your family is making two car payments every month and has debt problems, then one of the cars may have to go. The follow-on savings of selling a car are huge: No car insurance or annual registration bill, no repair and maintenance costs and less gas.

Some middle-ground ideas for saving money: Stop eating out for lunch every day, stop using a dry cleaner, step down a few notches in your monthly cable/internet service and do not acquire a pet. They can be expensive.

4. STOP SAVING AND INVESTING

You can't afford it, so stop doing it for the time being. Take your contributions to a registered retirement savings plan or tax-free savings account and use them to pay down your debts. Then, when your debts are repaid, take your former monthly payments and direct them into your RRSP or TFSA.

Don't overthink this plan. Yes, theoretically, the return on your investments may exceed the interest rate on your debt. But many people think they're better at investing than they are. By buying and selling at the wrong time, they end up hurting their returns. Debt repayment is a guaranteed return on your money.

5. LET EVERYONE KNOW YOU'RE ON AN AUSTERITY KICK

No need to explain the nasty details. Just tell people you're living small for a while to get your finances in order. This clears the way for declining invitations for expensive nights out and vacations you can't afford.

Your friends and family will not think less of you for this. More likely, they'll respect you for being decisive in looking after your finances.