Is debt casting a stranglehold on your finances? Take heart, you are not alone. Millions of Americans choose to remain shackled with boatloads of consumer debt and never do anything to get out of it. Well, nothing substantive anyway.
You don’t have to ignore the mountain of debt piling up. In fact, it would be better if you didn’t because excessive debt will cripple the wealth building process. It will mess up your savings, the kids college funding, and even your retirement investing. In many cases, it also ruins relationships.
Perhaps people choose to ignore their plight because they are blind to debt’s affects in their life. Some probably enjoy the perks that come from excessive spending. Maybe in some cases, the mountains are so overwhelmingly high people don’t know where to begin climbing.
The 5 Steps to Get Out of Debt
Whatever your circumstance, this post can help. The steps to get out of debt are easy enough to understand. However, they are more challenging to implement. And I’m probably not going to start at the place you would expect.
It all begins with attitude.
Step #1: Get angry
The choice to get out of debt begins on the inside, in your soul. There has to be a fire burning hot and heavy that will push you to take on this task with reckless abandon. No halfhearted, lukewarm effort is going to cut it. You have to get fired up! If this doesn’t happen, you will never make it.
I emphasize this because the debt-payoff-journey is a tough road. It’s filled with ups and downs, financial and emotional setbacks, and questions that sometimes have no immediate answers. The journey will play tricks on the mind and lead to doubts as to why you are on the journey in the first place. In those moments, you will need some hot coals of emotion that continue to burn, directed at your debt.
So get angry at it. Tell debt you are going to kick its tail and be done with it. It’s ruining your life. Are you really going to let it win?
Step #2: Stop borrowing money
When I reached a chunky 200 lbs. several years ago, it became obvious that was more than my 5’11” frame desired to handle. Sluggishness, high blood pressure, and poor eating habits all ruled my life. I didn’t like the look or the feeling and I knew if something didn’t change, I might have drastic health issues later on.
So after getting angry about my situation, I worked on removing the bad habits. I ate better and took vitamin supplements. There were no more late night snacks before bedtime. I got off the couch and started running. I lost 35 lbs. and am more fit now than I’ve probably ever been.
I eliminated the things that led to my condition, which is exactly what you must do with your debt. To get out of debt you can’t take on any more debt. It’s as simple and basic as that. You can’t keep adding to the depth of the hole you are already in.
You may have to take some drastic measures, like cutting up your credit cards. Yikes! This is already getting tough and we are only on step #2. I told you this journey would require some intestinal fortitude.
Step #3: Save
To get out of debt it’s a necessity to save any little bit you can pinch out of the monthly budget. Developing an emergency savings fund at the beginning will help you stave off going into more debt. You will have built up some cushion so when emergencies come you can pay for them in cash instead of putting them on a credit card.
In fact, I would suggest developing an emergency savings fund before you begin the full-blown process of paying off the debt. So in order to do that quickly and move on to fully attacking the debt you may have to:
Step #3A: Sell some stuff. Look around your house for things you are not using. Ask yourself, “Do I need that thing more than I want to get out of debt?” If the answer is “No” then get rid of it. If the answer is “Yes,” ask the question again, just to make sure.
Have a garage sale. Put the items on Ebay or Craigslist. Take things to a consignment store. You need to raise cash quickly to establish that emergency fund. Selling items is the best way to do that.
Step #4: Increase income temporarily (find part time work or do some overtime)
This step will vary from situation to situation. Some may not be able to take on a part time job. Perhaps your current job will bring in the necessary funds to pay off the debt in a reasonable amount of time. Maybe you conclude the extra time spent away from your kids won’t be worth the extra money.
It’s still a step in the process that needs to be evaluated. And if you decide to take a part time job, realize it’s not forever. This will be something you do only to speed up the debt payoff process. Once the debt is gone, so is the job.
Step #5: Choose a debt repayment plan
There are two schools of thought here, both with merit:
1. Choose the highest interest rate debt and pay that off first no matter how large it is. Follow that up with the next highest amount and so on until the lowest interest rate debt is paid off last.
Main Pro: By attacking the highest interest rate debt first, you are paying off the one that is costing you the most money.
Main Con: If it’s a large debt amount, it may take a long time to get this first one taken care of which can be discouraging.
2. Choose the smallest debt amount and pay that off first. Then follow that with the next largest and so on, saving the largest debt amount until last.
Main Pro: You get some of the small debt amounts taken care of quickly which can be a big psychological victory.
Main Con: You may pay a little more interest over the life of your debt payoff plan.
You must decide which payoff plan will work for you. I prefer #2 because of the psychology boost that comes from seeing debt quickly fall by the wayside. I think that’s one way to keep the inner fire burning and create momentum for the rest of the journey.
Either way, you are paying off debt and that is always a good thing.
Getting out of debt can be discouraging and it’s often tough to know where to begin. But it doesn’t have to beat you. Get started today taking control of your life. The road to financial freedom is waiting for you to take the journey.
For those that have paid off your debt, what was the toughest part? For those in the process, what’s been the neatest victory so far? For those who haven’t started yet, what’s holding you back?
Next Post: Be Fearless
Prior Post: The Secret Weapon to Contentment