Competitor: This article comes from Jose at FigueroaFinancial.com. See the original post – 6 Steps to Debt Freedom.
Entry Category: Strategies for Getting out of Debt
I was reading a pretty depressing article today on our national debt (totaling $15.3 trillion). For example, The U.S. national debt has more than doubled since the year 2000. Or how about this one: The U.S. government has to borrow 43 cents of every dollar that it currently spends, four times the rate in 1980. I could go on but you get the picture. This is the kind of stuff that should scare you or make you really upset. We have dug ourselves a pretty deep hole and the situation looks hopeless.
However, while the solution to the national debt crisis is out of your hands, taking care of your personal debt is not. But you need to reach a great level of disgust and frustration with yourself. You have to decide that you are done with debt. That you are done being a slave to the lenders. That you are taking control of your financial destiny. If you are ready to change, if you are truly done borrowing money, there is a way out. Here are the 6 Steps to Debt Freedom:
- Establish a beginner’s emergency fund of $1,000. You need to have a small cushion so when the car needs a repair you don’t have to use a credit card to pay for it.
- Stop borrowing money. Do not add more debt while you are trying to get out of debt.
- Stop your retirement contributions temporarily. Yes, even if your employer provides a match. You need all the cash flow you can get. Plus you need to focus on getting out of debt instead of having your attention divided on multiple tasks.
- List all your individual debts (except your mortgage) smallest to largest. Make sure you are current on each one of those debts and keep making the minimum payments. Then start paying extra (as much as you can) on the smallest debt.
- When you are done paying off that smallest debt, take the amount of that payment and apply it to the next debt on the list.
- Repeat steps 4-5 until you are done with all of your consumer debt (credit cards, medical bills, car loans, student loans) is paid off. This process is known as the “Debt Snowball“.
Do’s and Don’ts
- Do consider working extra hours or taking a second job so you can have extra income.
- Do consider selling some assets (have a garage sale for example) to jump-start your debt snowball process.
- Do close your accounts when you pay them off. You don’t need them anymore.
- Don’t fall for the trap of debt consolidation. All you are doing is moving the debt around. Interest rates are not your problem.
- Don’t borrow money from your retirement plan. If you lose your job or you leave your job, the payment is due within 60 days. If you don’t pay it then, it is considered an early withdrawal (if you are younger than 59 1/2 years old) subject to taxes and penalties. By taking the money out you are also losing out on any investment gains on that money.
So there you have it. You have the steps plus some additional guidance on how to get out of debt. This is the process my wife and I used to get out of consumer debt exactly 4 years ago. It took 29 months but we paid$50K in debt. We have never looked back.
It can be done but it is up to you. There is no product without the process. There is no victory without sacrifice. Decide today and act today!
The rich rules over the poor, And the borrower becomes the lender’s slave.
Proverbs 22:7 (NASB)