What does it take to get out of debt? Better yet what does it take to get out of debt forever? These are questions financial free debt help experts all over the world are constantly answering all the time, in many different ways. There are many expert thoughts on this subject that vary across many different theories. But there are 8 principles that are a constant and if followed, can help get you out of debt and adopt the financial habits of the wealthy. I call this the Debt Diet. Let’s take a look at the 8 steps for getting rid of your debt:
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- Stop Acquiring New Debt
For hell sakes man stop getting into more debt! This is the first and foremost step. Establish a personal vendetta against debt. Hate it. It is your new enemy. And you are going to get the best of it rather than the other way around. Take those credit cards out of your wallet right now, and vow to never use them again (at least until you get out debt).
- Start & Setup a Budget
You’ve probably setup a few budgets in your lifetime. This isn’t one of those. This time it’s got to be different. This time you have to actually keep the budget you setup for yourself. No excuses. Be strict with yourself. I recommend using the free tool Mint.com for setting up budgets and categorizing your purchases as they come in. Watch this daily and make sure you are always on track and never going over on any of your specific categories such as food, entertainment, gas etc.
- Cut out Unnecessary Expenses
Now that you have your budgets setup, now you can accurately go through and cut out spending that you really don’t need. This part requires some dedication and empowerment on your part. Nobody can force you not to buy certain things. This is where you have to decide to cut things out that you really don’t need. Have fun with this part and be realistic.
- Create your Debt Elimination Plan
Creating a budget is not good enough when it comes to getting out of debt. You need a game plan. And an aggressive one at that. Bust open a spreadsheet and start planning out how you plan on paying off your debts. Be specific. Open up a word doc and take down some notes and make an official plan out of it. Some things you could cover are:
* What date will you be debt-free?
* What specific goals/milestones along the way will you need to accomplish?
* What are your biggest personal weaknesses that could prevent you from getting out of debt?
* How do I want to pay off my debts? (Highest interest first, Debt snowball etc.)
- Establish an Emergency Fund
Ok guess what…crap does happen people! Emergencies always seem to rear their ugly head especially when you start to get on a roll with this pay off your debt thing. Most experts recommend putting away around $1,000 as an Emergency fund. Don’t touch this unless you absolutely have to. This is to help you as a backup plan to take care of your most basic needs.
- Begin Paying Off Your Debts Using Your Adopted Strategy
Most people pick 1 of 2 strategies. Either 1) they list their debts from highest interest rate to the lowest and start paying from the top or 2) they list their debts from lowest balance to the highest and start paying from the top. The first strategy is a smarter move mathematically however the second strategy known as the “Debt Snowball” can help give you more of a psychological advantage if that is something you think you might need.
- Find Ways to Increase Your Income
You can greatly speed up this entire process at this point by finding a way to increase your income. Even if it’s a slight increase it will make a huge difference. You could pick up a second job; do some consulting on the side, work some extra hours at your day job etc.
One very important thing to note here is that this absolutely won’t work if you don’t have the previous 6 steps in line.
- Stay Disciplined
The term “stay disciplined” is becoming more and more of a cliché these days but it’s more than true when it comes to getting out of debt. Find a way to control your inner self and stick with the previous 7 steps and you will find your way mastering one of the most difficult problems for the common man/woman…debt!
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