BeingFrugal.net began as a personal journal to hold me accountable for my commitment to get out of debt. Getting out of debt is a high priority for my family, and I like to write about it frequently; partially because I still need to hold myself accountable, and partially because I want to motivate others who are looking to get out of debt.
When the Redbook article on leaving credit cards behind came out, I had no idea the far-reaching impact it would have. People who have seen the article stop me frequently and ask how to get out of debt. So here’s my answer. It’s basic, but sometimes it’s good to get back to the basics, when it comes to our finances.
Make a Commitment to Get Out of Debt
Getting out of debt begins with commitment. If you aren’t committed to getting out of debt, you’ll never leave debt behind. It takes hard work. It’s not fun. You need that underlying commitment to get you through the times when you want to give up. And there will be times you want to give up. That’s the bad news.
The good news is that getting out of debt is worth it. Proverbs 22:7 says “…the borrower becomes the lender’s slave,” and it’s true. When you owe money, you have to make payments to your creditor every month, rather than using that money to help you reach your goals. When you’re out of debt, you can use your money however you like. You can live a better lifestyle on fewer dollars, if none of those dollars are going toward credit card payments.
Part of your commitment to getting out of debt should be to take on no new debt. As long as you are taking on new debt, you’re moving in the wrong direction. Cut up your credit cards, or freeze them, if you’re not ready to get rid of them all together. Do whatever it takes, but do not use your credit cards to pay for things while you’re getting out of debt!
Finally, make your commitment official. Sign an agreement with your spouse. Find an accountability partner. Start a blog and tell the world about your plan. If you make your commitment public, you’re more likely to follow through, because those who know about your commitment will hold you accountable.
Formulate a Plan to Get Out of Debt
Now that you’ve made a commitment to get out of debt, you need a plan. I already mentioned that you shouldn’t take on any new debt. If you’re not going to take on any new debt, you need a plan for emergencies.
Your first priority should be saving an emergency fund. I know that goes against everything you want to do. You want that debt gone. But if you don’t have an emergency fund, what are you going to do when the car breaks down? You’ll have to put the repair on a credit card. So save an emergency fund first. Dave Ramsey suggests having a $1000 emergency fund, but you need to come up with an amount that you are comfortable with. $1,000 doesn’t go very far if you lose your job, so if your job isn’t stable, save more.
At this time, you’ll also want to go over your bills and create a budget. Make sure your income is greater than your outflow. If it’s not, you need to increase your income or cut your expenses until you make a budget that balances. You should be budgeting more than the minimum payment for the bill you want to pay off first. I like to pay the bill with the lowest balance first. Others like to pay the card with the highest interest rate first. Do what works best for you, but make sure you pay more than the minimum.
Make sure you have a system you can use to track your budget. There are many tools that are effective, from pencil and paper, to spreadsheets, to budgeting software. My personal favorite is YNAB, as it’s simple and effective. But you need to use whatever works best for you.
And when you pay off that first credit card, take the amount you were paying toward that card and add it to the amount that you are paying toward the next debt you want to pay off. That’s called the debt snowball, and it works. The key is to continue to pay the same amount toward your debt every month until it’s paid off. Don’t reabsorb the debt payments into your general budget, because that will slow you down. If you use the debt snowball method, you’ll be out of debt much faster.
Get Creative in Saving and Making Money
To make your debt repayment go even faster, you need to increase your income and decrease your expenses. If you need inspiration on how to make more money or cut your expenses, you need only to have a look around the internet. Ideas abound on blogs like this one and others. Here are a few really good posts you might want to check out:
Once you’ve found ways to increase your income and reduce your expenses, take the money you make and save and apply it toward your debt. Many banks allow you to make four payments a month toward your credit cards, so plan on making a payment as soon as you have the money. You’ll be surprised at how quickly those little snowflakes of money reduce your debt.
Stay Motivated to Meet Your Goal
Staying motivated is the most difficult part of the process. You need to remember you didn’t get into debt overnight, and you won’t get out overnight. There are times when it will be hard to stick to your plan. You won’t feel like cooking at home, rather than eating out. And there are times you’ll make bad decisions. Everyone does.
The important thing is to stay motivated and to go back to your goals when you’ve fallen off course. You can make this easier by taking a few steps.
Enlist friends and family to hold you accountable. If you know someone will be asking you how you’re doing, you’re more likely to make good decisions. So ask for help. It’s tempting to keep financial problems a secret. I’ve been there. But since I opened up about my debt story, I’ve received a lot of support, which motivates me to keep going.
Read about getting out of debt. I find that the more I immerse myself in the subject of getting out of debt, the more motivated I am to keep on track. I like to read anything by Dave Ramsey or Mary Hunt. There are tons of books on getting out of debt. Visit your local library and check out a few.
If you don’t like to read, try audiobooks. Or listen to podcasts. I love to listen to Dave Ramsey’s show. Do a search in iTunes and see if anything else appeals to you. There are a lot of free podcasts out there, and if they keep you motivated, listen to them!
My mom likes to post pictures of her goals around the house. If you’re a visual person, that might work for you. Does getting out of debt mean you can afford to buy a house? Post a picture of a house on your wall. Is there a quote or Bible verse that motivates you? Write it on a post-it note, and put it on your bathroom mirror.
The bottom line is, you need to know yourself. What could tempt you into giving up on your commitment to get out of debt? When you know the answer, make a plan to avoid it or deal with it.
I firmly believe that most people who want to get out of debt can do it. As in any situation, there are exceptions. But most of the time, if you are doggedly committed to the goal of getting out of debt, you can eventually achieve that goal.
Photo by SqueakyMarmot.