debt snowball

Life After Debt

by mike on November 20, 2009

“Honey, I can’t believe how many bills we have to pay.  It feels like we would each have to work three jobs just to keep up.  How did this happen?  I’ve got four separate Mastercard bills here alone, not to mention Visa, Discover, our home equity loan, and the payments for our new dishwasher we needed.”  Does this sound familiar?  Unfortunately this conversation occurs in many households across our great country.  I have yet to meet a single person or family who has consciously made the decision to rack up as much debt as possible.  It happens very slowly.  Next thing you know, you have $40,000 in debt and you don’t even remember how you got there.  Although you can wander, so to speak, into debt, it takes a high level of intensity to get out.  Let’s take a look at how to apply that intensity to rid your family of debt once and for all.

1.      Stop borrowing! You must first draw a line in the sand.  Spit-shake and pinky-swear that you are done with debt.  You have to realize that debt is not your friend and it is not a tool to help you prosper.  As Proverbs 22:7 says: “The rich rules over the poor, and the borrower is slave to the lender.”  That is an extremely powerful verse.  Many of you that have payments upon payments each month to debtors can relate to the use of the word slave.  You feel like you are working and working and everything you earn goes to someone else.  That is no way to live.  The only way to get out of debt and stay out of debt is to make a vow to never again borrow.  If the dishwasher breaks, do dishes by hand until you save up the money to buy a new one.  Have an emergency fund set aside so that you can cover unexpected expenses, not Mastercard.  The key is (I don’t know if I’ve said this yet) to stop borrowing money!

2.     Written game plan. Once you decide to stop borrowing money, you must then do a written game plan before each month begins.  There are always two sides of the equation when it comes to personal finances.  The first is income.  You may decide that you need extra income to help get out of debt.  There are several ways to do this: pick up overtime, get a second and/or third job, or sell stuff.  The other side of the equation is expenses.  While you are getting out of debt there should be no vacations, no restaurants, no deluxe cable package, maybe even no cable (gasp!).  Trim the expenses down to next to nothing; only the essentials.  Working the extra job or not eating out is only a temporary thing.  The more intensity you pour into it, the faster you will get out of debt.

3.     Debt snowball. Once you have your written game plan, you should have extra money at the end of each month.  In other words, your income minus your trimmed-down expenses plus your monthly minimum debt payments should leave you with a surplus.  The best way to utilize that surplus to eliminate debt is to use the debt snowball.  List all of your debt smallest balance to largest balance.  Any extra money you have at the end of the month should be applied to the smallest balance.  Once that one is paid off, apply any extra on the next smallest debt, including the money used to pay the minimum payment of the debt you just eliminated, and so on.  This works great because it gives you motivation as you work the plan.  As you see a debt get eliminated, it gives you an “oh yeah!”   You feel like you are accomplishing something.  By the time you get to the end of the debt snowball, you are throwing large amounts of money at the biggest debt.  Most people (depending on your situation) can get out of debt, except the house, in eighteen to thirty-six months using the debt snowball.

4.     Save for future purchases. Now, once you get out of debt, you must stay out of debt.  This means saving money.  Put three to six months worth of expenses into an emergency fund to cover unexpected expenses or a job layoff.  That way you don’t have to rely on debt.  You also need to, as part of your monthly game plan now that you are out debt, start saving for large purchases.  These include your next automobile, house repairs or renovations, vacations, etc.  Usually going through the whole process of getting out of debt is motivation enough to keep you from going back.  Being diligent about saving will help ensure that.

As I stated at the beginning, it takes intensity to get out of debt.  Speaking from experience, it is a great feeling of accomplishment to know that you buckled down and did something that seemed impossible at first.  If you ever want to truly prosper with money and build wealth, you must first rid yourself of the chains of debt.

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