Let’s face it; debt is a reality in our world today. So much so that the largest forms of debt aren’t really considered debt anymore. The three main investments people make are their home, their car, and their education, and it has become commonplace to borrow money to make them. So when people say that they are “debt free”, they typically mean that they have no consumer debt, meaning personal loans and credit cards. Sometimes, that will include the car payment as well, but finding someone that is free of debt the Dave Ramsey way (no mortgage, no student loans, and no debt at all) is like finding Bigfoot these days.
I don’t mean to imply that it there aren’t people that are completely debt free, but our society is setup in a way that most people can afford their mortgage and car payments. What causes the most trouble in people’s personal finances is the consumer debt that they rack up sustaining a lifestyle that is really outside of their means. So the focus on this article will be how to get out of that debt, and giving you a chance at simple and sustainable financial life, that allows for saving.
The 5 Ways to Start Getting Out of Debt
1. Cut up the cards. Okay, no one claimed this article was going to be rocket science. This is most basic step in getting out of debt. By cutting up your cards, you prevent adding to your total debt, making paying it off that much simpler; which leads directly to our next step. In addition, it also creates a disciple that makes you spend what you have, not what you can borrow. This will drastically change your perspective on the cost of things.
2. Write down all of your debt. This step is more psychological than practical. Often times, it is hard to quantify how much you putting on your card until you take the time to make a list. Debtors can get real sticker stock when doing this. Granted, the amounts probably aren’t going to seem drastic next to your mortgage, but a good exercise is to write down how much you make per month (take home). Then calculate how long it would take if you took every penny you earned and paid down your debt without paying any other bill. That puts buying that new pair of boots in perspective.
3. Occupy your time. For some, shopping is a something they do in their free time. An idle mind is a devil’s work shop, right? So if you have a lot of free time, you are going to try to fill it, and there is a lot of money spent on advertising that is trying to convince you to spend your money. This isn’t some crazy conspiracy theory; it is just the facts. Just watch the Super Bowl commercials; each one is trying to convince you to buy something. So instead, take up a hobby or even a part time job. Something that isn’t expensive!
4. Build up a savings fund. Another reason people fall into debt, or at least add to it, is that they have no reserves saved up for a rainy day. So they use their credit card to buy an umbrella; but since it’s on credit, they get an umbrella that lights up and has a radio. Okay, that’s an extreme example, but the fact is that if you are using borrowed money to purchase something, you are much less disciplined in your choice. If you have set amount of money to spend, you are going to be more mindful of your purchase.
5. Create a household budget. While it is important to establish an emergency fund, it is equally important to create a budget that allow for spending money each month. The same principle is at work here, just on a smaller scale. If you have $25 per month to spend on entertainment, you will find creative ways to make the most of it, but if you are putting it on debt you won’t care. For example, with $25 per month, you may opt to just go to the matinee movies at a discounted price, or even consider just not going. Finally, the most important part of the budget is that you have to budget paying down your debt. We have established ways to prevent adding to your debt load, now you have to whittle it away.