You have $2,000 owing on one credit card, $1,500 on another, $15,000 left in student loans, a huge mortgage and are continually going deeper and deeper into the red. You make a pretty good salary though, so you don’t really like to concern yourself too much about it—you’ll pay it off eventually, right? But each month when the statements come you find your heart racing and you are left scrambling and stressing and without a real plan of action. Sound familiar?

Living intentionally means living within your means. Debt is a major source of unneeded stress in our lives, and also a major relationship breaker. Keeping up with the Jones won’t keep you happy. As I stressed in the first post, if you are content with what you have, you are truly rich and if you are selling away your time to gain material possessions, you are truly impoverished. Having a plan to live within your means will help reduce unwanted stress and put you in a place where you feel more comfortable and happy.

First, it’s important to figure out how much money you make, how much money you spend and how much debt you really have**. Your tracking journal from Part 4 may come in handy here. Take out every bank and credit statement you have, all the information on your student loans, your mortgage papers, your pay stubs and every other piece of financial information you have. Work through the papers and figure out EXACTLY how much you owe, how much you make and how much you spend each month. If you are confused about how to do this, or have trouble, it’s probably best to contact one of the many free resources in Canada or the US that work to help people tackle debt. You can usually find one in your area by looking in your local phone book or googling for debt counselors. Be wary of any services that charge major fees or expect you to move all your money and loans to their in-house banking or mortgage services.

Once you have all this information in front of you, and know your financial reality, it’s time to make yourself a budget. Figure out which things you absolutely must spend on each month, like housing, food, etc. and allot money into spending categories. Give yourself a little spending money each month for non-essentials, but cap it at a reasonable amount that allows you to still pay down your debt or begin saving for emergencies and the future (sending your kid to college, retirement, travel, etc.).

A simple way to change your spending habits is to use cash instead of plastic. Cancel and cut up your credit cards or hide them away and forget about them (except to pay off any remaining debt), leave your debit card at home. Put cash for each of the spending categories (food, clothing, transportation, entertainment, etc.) into separate envelopes or jars at the beginning of each month and then only use what\’s in each envelope for each purpose. When the envelope runs out of money—you can’t spend any more for that type of purchase. It may be difficult to stick to the first couple of weeks, but it will get easier with time.

Once you have a plan in place to remove your debt, you will find yourself in a much happier position, even if it will still take you time to pay that debt off. Living on only the cash you have in hand is freeing in many ways and also usually cheaper in the long run because you aren’t paying interest and other extra fees for each purchase. Having a budget helps you live intentionally and keep your spending prioritized on the essentials.

** disclaimer** I am not a debt counselor. The views expressed here are based on my own personal experience and should not be taken as professional advice for removing debt. When in doubt, please seek professional financial advice.