Integrate Debt Elimination into Your Overall Financial Plan

When people recognize the extent to which debt restricts their capacity for living a full and meaningful life they often focus on getting rid of debt to the exclusion of everything else. This can keep us from experiencing the joy and excitement that we are looking for by becoming free from debt.

For that reason it is worth taking time to consider some of the ways we need to relate our debt reduction program to other aspects of our financial program. With a more balanced approach we are much more likely to be successful.

Make Debt Elimination a Top Priority

Getting rid of debt is not your only high priority goal, but nothing is more important either. Don’t lose site of it’s role in your financial life.

Look at the whole picture. This is critical. Financial independence in your life becomes possible when passive income (money that comes in without your continuing to work for it) is enough to cover your expenses. Debt is a key factor in the equation.

You can plan for financial freedom by increasing passive income, adding to your IRA and other investments for example. But the amount of income you will need to live independently depends on living expenses.

Look at your personal expenses. If you could eliminate today all your credit card bills, your car payments, your personal loans and your home mortgage, how much would your cost of living decrease? How would that impact upon your life?

Lowering your cost of living is just as important as planning for permanent income. Getting rid of debt is a key consideration, probably your largest consideration, in reducing monthly expenses.

Debt elimination relates directly to preparing for old age, or retirement earlier. When you get rid of debt you free up additional money for investment. The more you can invest monthly, the sooner you will become financially independent.

Getting rid of debt makes your income available for other purchases as well. As a recent bank ad proclaimed, “Money in the bank makes all the difference.”

Eliminate All Debts Without Exception

It is easy to rationalize debt. But in the long term there are no acceptable debts.

Are some debts unavoidable? No doubt. But just don’t accept any being an inevitable necessity.

Consumer debt is totally unnecessary and should always be avoided. Not only that, these debts typically call for higher rates of interest. That is why credit card and personal loans generally need to be paid off first in your debt elimination program.

Your overall financial plan calls for learning how to finance such purchases with cash. With proper planning even larger purchases such as automobiles can be paid for without borrowing money.

Debts such as those for education, medical bills, and a home may be temporarily justified. But these should be eliminated as quickly as possible.

One of the tragedies faced by many people today is that they get too old to continue working but still owe money on their home. There are many explanations for this but none of them pay the bills.

Stay Balanced to Make Your Journey More Enjoyable

There is an old saying: All work and no play makes Jack a dull boy. If you focus too much on debt elimination you can make life pretty unpleasant. Fortunately you can be completely successful without making yourself miserable.

This is the primary reason that I recommend starting your debt payoff plan paying only the amount you are obligated to pay already. If you continue to pay what you are but add no new debts you will still pay off all your debts in less time than you think.

The key to maintaining a balanced approach to your finances in general is to see it as part of maintaining a balanced life overall. A sensible approach to debt elimination can best be seen then as part of a balanced approach to financial management. It is not the whole story, just a part.

In short this means you don’t have to eliminate your vacation in order to eliminate your debt. You may need to make different choices about what to do, but you don’t need to cut it out altogether.

Indeed, debt elimination underway or not, no one should be making financial choices that are beyond their resources. That kind of thinking is what gets people into all this trouble in the first place.

If eating out is important to you, don’t give it up. Just plan to pay for it. That is your new way of living and it is a better, happier way.

And believe me. If you pay for it with cash instead of a credit card it will taste better, too.

Choose to do things you can pay for instead of borrowing. But it is better to take a few extra months paying off your debts than to make getting out of debt so miserable you give up on the whole project.

Conclusion

So getting rid of debt is not the only important part of your financial plan. At the same time it is one of the essentials

Because it is, in fact, related to so many of your other financial goals it is still vital to eliminate debt as soon as possible so you can give more attention to other priorities.

In our final article of this series, Maintaining Drive and Enthusiasm, we will talk about ways we can stay excited about our debt free project until success is complete.