Get Out Of Debt

What can you do now so you can have a better quality of life later or for retirement? Making sure you have no debt is the 1st step. Having debt it makes it hard to save for anything, whether for a vacation,large purchase or even retirement.

First and foremost you have to really want to get out of debt. So, paying off a bill and then creating another one is not getting out of debt. By creating another bill, all you are doing is substituting one bill for another, and that is not getting out of debt.

So are you ready to get out of debt?

1st make it a goal to not create any more debt!

2nd work into your budget a little extra to pay off your debt.

3rd start saving, put whatever you can every payday and whenever you find you have extra money into an emergency savings account. You’re going to build this savings account to help keep you out of debt. A lot of time we create more debt when something breaks down and we use a loan or credit card to buy another. So the goal here is not to do this anymore. Your emergency savings account will help keep this from happening. Sometimes we can wait to replace or repair an appliance until we have saved up the money, but other times we can’t, the appliance or vehicle needs to be repaired right away. We had an appliance break down recently, 10 years ago I would have created another debt by charging or taking out another loan to replace the appliance. But today due to having an emergency savings account we were able to replace the appliance without creating debt or waiting until we had the money saved up for it. Are you ready to get out of debt? Let’s get started.

List each of your credit cards, car loans, and any other loans you have. Next to those, list what you owe on each one; then list what your average monthly payment is; what the interest rate percentage is; what your average interest is each month and what a late charge fee is if you pay your bill late. See example below:

As you can see I also included 2 columns that would show how long it would take to pay off a debt by making only the minimum monthly payments as well as how much money wasted in interest. Just think what you could have done with all that interest if you didn’t have the debt.

You’ll be updating this worksheet monthly so I would suggest putting this information into a worksheet on your computer so that you can make changes monthly. The 1st sheet/tab you’ll have the above information listed so that you can see the overall picture at a glance. Then the next worksheets/tabs you’ll put the information in for each separate debt.

Below is an example of how to set up an individual page for each separate debt. Note numbers used are for example only and do not reflect actual interest costs, you will use the information from your monthly bills statement to enter on these pages.

There are several ways to get out of debt, but I’ll discuss 3 of the ways I have tried and how each worked.

1) Debt Consolidation Agencies
2) Paying off the highest interest bills/debt first
3) Paying off your lowest balance debt/bills first

Only you will know which way will work for you. Each person is motivated differently.

I had several credit cards, 3 – 4 department store credit cards, a car payment as well as the regular bills (that were past due), personal loan and a home payment. Today I have one credit card, 1 vehicle payment with interest (the goal is to have it paid off in 8 months or less) and a home payment that will be paid off in another month. It has taken time but with perseverance, we will be debt free in 1 year or less. Then the focus will be on an early retirement. All of this is possible, but sacrifices have to be made to get out of debt.

Don’t say it! “I don’t have extra money to pay extra on a bill!” Yes you do! I used to say the same thing. How bad do you want to get out of debt? Look around and see what you can sell that you don’t really need. Have a yard sale and take what you make to pay down or off one or two of your smallest debts. And then take the savings from the paid off bills to pay more on another bill until it’s paid off. Are you making payments on a newer vehicle, consider trading down to something more reasonable with lower payments. Then take the monthly savings and apply that to another debt. Are you renting a house or apartment that is really more than you need? Think about downsizing for now, once you are out of debt and have saved up for you can then upgrade to the vehicle, house, apartment or other you want. By being debt free you can afford that home rental with a pool. Now just a note here, I do believe in paying a little more in rent for a home/apartment in a safe neighborhood. What I’m saying is if you don’t need a 3 bedroom apartment, save money & get a smaller one, until you can really afford a bigger/better place. Do you really need all the premium cable channels, how about forgoing those for a year and jump start your debt reduction.

By saving up and paying cash for an item or vehicle you may have more leverage to bargain with the price.

And again, a lot of folks, myself included, would as soon as they paid off a regular monthly bill say now I have extra money and create another bill instead of using that extra money to pay off/down the next bill/debt. So if you’re really serious about getting out of debt use any extra money including money from paid off bill to get rid of the rest of your debt and not create more.

Ready to get out of debt, let’s get started. We’ll talk about Debt Consolidation Agencies first.

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Start Small and Watch Your Savings Grow

It is better to have tried and failed than to fail to try.