There is no doubt about it, getting out of debt is your most important step toward experiencing financial independence. It is not hard although it does require commitment, persistence, and patience.
Debt Elimination—the First Step
Getting out of debt is so important that I have devoted a major section of the Success With Money website to it: Debt Elimination: Get Out of Debt and Stay That Way. You can learn a lot more there, but here I want to give you a simple, step by step formula that you can follow starting right now to get out of debt.
Following this plan you will need no more money than you are spending on your debts now! What could be easier than that. Of course you can speed things up by adding more to your debt elimination program as your income increases or other circumstances permit.
Get Out of Debt—a Step By Step Plan
You have heard the old adage describing the process for achieving any goal: plan your work and work your plan. It applies very aptly to getting out of debt. If you follow a simple plan like this one, step by step, it is not all that difficult to get out of debt. Many others have done it.
1st, Never Take On Additional Debt
From this point forward, never incur another debt for any reason. Stop laughing at those happy folks who simply say, “If you can’t pay for it you can’t afford it.”
This is the hardest step because it separates the talkers from the doers, but once done the rest is easy. From now on it must be a given that when you want to buy something you first get the money for it, then buy it.
2nd, List All the Debts You Need to Pay Off
Write down how much you are paying each month now. Add up the total to identify how much you will pay each month to eliminate debt.
If you know how to use a spreadsheet on a computer this is a good time to make use of that skill because you can add columns for other useful information such as interest rates on each account and due dates. Otherwise, pen and paper work just as well.
3rd, Decide Where You Will Get the Money
Remember you are already doing it. This is the sweetest part of the plan. You don’t need more money than you are paying now to get out of debt.
You may round off numbers but if you are paying $300.00 per month now you will still only need to pay that much each month going forward. You just won’t reduce it when the minimum required payment gets smaller.
4th, Set Up an Allocation System to Eliminate Your Debts
This involves two simple parts, getting and dispensing the money. One excellent way is to set up a separate checking account for this use. Every month you will deposit the total amount you are now spending on your debt payments into this account. Then you will pay out the same amount.
You may increase the total if you can find extra money, say from a raise, to add into the fund. Never reduce the total put into this account each month until all debts are eliminated.
When one debt is paid off, the amount being paid to that account is added to the amount being paid on another account, either the one with the highest interest rate or the one with the smallest balance. When all other accounts are paid off, add this total to your house payment until it is eliminated.
5th, Start Today and Never Give Up
If you suffer a setback for some reason, don’t sweat it. There are real unavoidable emergencies. Renew your commitment to debt elimination. Be persistent. Be patient. If you do, you will get out of debt and probably sooner than you think.
Commit Yourself to Get Out of Debt Now!
Ultimately getting out of debt is a matter of commitment and self discipline. Though the first few months will seem slow, soon you will be seeing tremendous progress every month. Let me assure you, debt elimination is well worth the time and effort it takes. And being debt free is fantastic!
