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How to get out of Debt

debt personal finance motivate debt snowball Emergency SMART income spouse organize Dave Ramsey

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#1
GoldenEagle

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12 Steps To Get Out and Stay Out of Debt

1. Make the Resolution: Spend less than you make. This is a tough one. Spending more money than you earn is common practice in the U.S., and increasingly in other countries around the world.

Learn to just say “No.” You must learn to say no to yourself, your spouse, and your children. This is called delayed gratification. It is essential to getting out of debt. A) Are you ready to make the resolution?


“Live like no one else [today] so you can live like no one else [in the future debt free].” – Dave Ramsey

2. Educate Yourself:
The local library is a great resource. If you eventually want to purchase these Amazon.com or Half Priced Books is a good place to look. We used DR's methods and went through Financial Peace University twice (first the audio CD and then the Dvd series) and I can tell you it works. We have been debt free since the summer of 2011! B) Have you considered taking DR’s Financial Peace University course? The new FPU course is only 9 weeks (1.5 hour sessions) long now instead of 13 weeks (2 hours sessions).

I. Some good personal finance books:

• The Richest Man in Babylon By George Samuel Clason
• The Total Money Makeover By Dave Ramsey
• The Millionaire Next Door By Stanley and Danko

3. Motivate Yourself: Getting out of debt takes commitment, energy, and intensity. This will require sacrifices. Set clear and achievable goals on one page or less. (I’d recommend the “The One Minute Manager” by Kenneth H. Blanchard and Spencer Johnson.) Put these goals on the fridge or as you walk out the door so you see them every day. Starting a financial journal on the GRS forum is a great idea. Reward yourself with little treats as you accomplish your goals. Normal = spend like there is no tomorrow. Being different or even “weird” by seeking to become debt free is a good thing. C) How are you and/or your spouse motivated?


4. Organize Yourself: Create a balance sheet. This helped us a lot when looking seriously at getting out of debt. D) What is your total debt? How much is the interest rate associated with each debt? What is the total pay off? What is your total Net Worth? How are you tracking your expenses (Excel Spreadsheet? Mint.com?)

Assets (stuff you own) – Liabilities (debts) = Net Worth

5. Choose: E) How are you going to get out of debt?
– Lowest balance (Debt snowball) or highest interest.

If the debt snowball…

a. Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc…
b. Next to each one write down the total balance owed.
c. Re-order these from smallest to largest debts (use Excel to make this simpler.)
d. Pay the minimum payment on all of the debts – except the smallest one.
e. Put every extra dollar you can find towards paying off that smallest debt.
f. Celebrate like crazy when you get that first debt paid off.
g. Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this one is paid off.
h. Celebrate again!
i. Continue this process until each one is paid off.

6.
Cut Expenses: Sell something. Create a budget. Cut. Cut. Cut. F) What are some ways you can cut expenses out of your budget? Once you’ve created your budget evaluate it periodically but most importantly - Stick to it!

Expenses > Income = Bad & Expenses < Income = Good

7. Spouses get on Same Page:
While every couple is different, you could consider reading the same materials, talking openly about your feelings, and sharing like goals. When you share goals, you are usually more likely to take the necessary steps to accomplish your goals. If you or your spouse are not on the same page, the process will be a lot more difficult. Communication is the key. Determine not to live life in the bondage of debt. Credit Cards are not the answer. G) Are you and your spouse on the same page? What would it take to get on the same page?

8. Get an Accountability Partner/Coach: When you are getting out of debt, you want to be influenced by people who support your decision. Not everyone does. This can even include family. Hang out with friends who are frugal. Befriend people who enjoy movies at home instead of in the theater. H) Who do you know would be a good role model for you in getting out of debt and holding you accountable to your goals?

9. Save up for an Emergency Fund:
$300 (if you make less than $15,000 a year), $500 (if you make more than $15,000 and less than $24,000 a year), or $1000 (if you make more than $24,001 a year) respectively. Do this quickly hopefully in less than 2-3 months. Emergencies can and always will happen – car repairs, home repairs, hospital bills, etc. It is better to be prepared for when the emergencies happen. I’d say a good goal would be an E-fund with 3-6 months of household expenses. We have 9 savings accounts we use to save for emergencies and expenses we know will happen – car repairs, new car, new computer, medical bills, baby related, purchases, vacation, etc. We don’t even touch our E-fund anymore for most emergencies. I) What system do you think would work best for you?

10. Increase Your Income: Seeking a raise is a good place to start. Getting a second job part-time is a good idea too. If a couple perhaps the spouse who isn’t the main bread winner could get a part-time job making $1000-2000 per month. Or what about having a yard sale? Hopefully this extra income will lead to you paying off your debts sooner. Your income is your greatest asset. Time to stop giving other people portions of it through interest and fees! J) What ways could you earn extra income?

11. Set Financial Goals:
Goals are the fuel that propel you through the slow days of debt repayment. Hey, the process will get hard and it will seem to drag on at points. You’ll want to quit and give up. You’ll start to think that your old way of living wasn’t so bad after all. These are the days you need to look at your goals and remind yourself of why you are making the decisions you are making. Make sure your goals are SMART – Specific, Measurable, Attainable, Realistic, Time specific. K) What goals do you want to establish for 2012? What are your long term goals over the next 5-10 years?

12. Stop Making Excuses:
Sometimes, not always, we make excuses. I would get out of debt but … [fill in the blank with poor excuse].

Right now you have a perfect opportunity to change your life and create a new financial identity. Accomplishing goals always feels great. Imagine how you would feel if you paid off all your debt and didn’t owe any money to anyone! You are on the right road to change your family tree! L) Are you ready to make the changes necessary to get out of debt?


Thoughts? Comments? Was this helpful?

#2
Fez

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Makes sense.

I agree that #1 is probably the most important. Spend less than you make.

The second is my book (and always has been) is save, save, save, long term save (compound interest is an amazing thing)

Overriding and above all others?

Give, give, give. Even when it hurts.

I first started tithing money I did not have. I was in financial trouble, not major, but in trouble. And I read where God said "Test me". So I did.

Three months or so later, out of the blue I was called into the office and given the equivalent of $1000 a month increase.

Give, even when it hurts, but do it out of love, not duty.

#3
GoldenEagle

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Makes sense.

I agree that #1 is probably the most important. Spend less than you make.

The second is my book (and always has been) is save, save, save, long term save (compound interest is an amazing thing)

Overriding and above all others?

Give, give, give. Even when it hurts.

I first started tithing money I did not have. I was in financial trouble, not major, but in trouble. And I read where God said "Test me". So I did.

Three months or so later, out of the blue I was called into the office and given the equivalent of $1000 a month increase.

Give, even when it hurts, but do it out of love, not duty.


I agree Fez. Good testimony!

#4
other one

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We have never had credit card balances so we didn't have to deal with that. I volunteered for all the overtime I could get for three years at work and paid our house off ten years early. It made it possible for us to retire at 63.

If you have the internal strength, you can use credit cards to make money. We keep enough emergency money in the checking account to alway (ALWAYS) pay off the Discover card at the end of each month...... and we put everything on our Discover card that we can and not have to pay anything up front. Even our utilities go on the Discover. We make from $350 to $600 a year cashback just from using the card. But one has to be very disciplined to do this, or have a very large checking account.

#5
OneLight

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I teach budgeting at work and this is the first step of what the class does. WE do this week to week, not month to month. A monthly review is more accurate, since we pay bills by the month. Your bills are to be included in your receipts.
  • Save every receipt for one month, spending normally while listing what the articles are if not on sales slip. (this gives one a realistic view of how they spend their money)
  • At the end of the month, make a list, dividing the list into two columns, "Wants" and "Needs". Take the slips you saved and place the items in their proper column - be honest
  • The column of wants is what you could of saved that month.
  • Next month, save your slips again, but this time, purchase only what you need.
  • At the end of the month, compare what you spent the first month to what you spent the second month.
We go on to understanding goals and how to reach them; prioritizing expenses; looking at credit cards and loans (finance charges), etc.

#6
chloe_fantastic

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Wow, all that makes me tired just reading it. :sleep2:

#7
GoldenEagle

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Wow, all that makes me tired just reading it. :sleep2:


Lol. Well it takes effort to get into debt... Should it be different when trying to get out of debt?


To all:
Has anyone heard of Financial Peace University with Dave Ramsey? Thoughts on it?

#8
GoldenEagle

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We have never had credit card balances so we didn't have to deal with that. I volunteered for all the overtime I could get for three years at work and paid our house off ten years early. It made it possible for us to retire at 63.

If you have the internal strength, you can use credit cards to make money. We keep enough emergency money in the checking account to alway (ALWAYS) pay off the Discover card at the end of each month...... and we put everything on our Discover card that we can and not have to pay anything up front. Even our utilities go on the Discover. We make from $350 to $600 a year cashback just from using the card. But one has to be very disciplined to do this, or have a very large checking account.


I agree Other One. We use our CC's to get rewards for Milliage for travelleing (Citicard) and also Discover for the rewards as well. We just use our CC's as debit cards and pay them off every month so we start with a balance of "0" on the first of the month.

#9
GoldenEagle

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I teach budgeting at work and this is the first step of what the class does. WE do this week to week, not month to month. A monthly review is more accurate, since we pay bills by the month. Your bills are to be included in your receipts.

  • Save every receipt for one month, spending normally while listing what the articles are if not on sales slip. (this gives one a realistic view of how they spend their money)
  • At the end of the month, make a list, dividing the list into two columns, "Wants" and "Needs". Take the slips you saved and place the items in their proper column - be honest
  • The column of wants is what you could of saved that month.
  • Next month, save your slips again, but this time, purchase only what you need.
  • At the end of the month, compare what you spent the first month to what you spent the second month.
We go on to understanding goals and how to reach them; prioritizing expenses; looking at credit cards and loans (finance charges), etc.


Great advice OneLight. :thumbsup:

#10
ChazzC

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Nice write-up! I'd say that #3 - motivate yourself - is a crucial, but often overlooked aspect of getting out of debt. For many, the main motivation for getting out of debt is fear; which, as they say, is a great motivator. But fear is also a 'negative' motivator, and gets old quickly. Setting and working toward positive goals, as you listed, provides a much more sustainable situation for the long haul. (Matt. 6:31-33)

Create a specific, worthy, lifetime goal and you'll have a strong motivation to get out of debt. One exercise that many people have found worthy is to seriously think about and write down what they would really like to be said about them in a eulogy.

#11
GoldenEagle

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Nice write-up! I'd say that #3 - motivate yourself - is a crucial, but often overlooked aspect of getting out of debt. For many, the main motivation for getting out of debt is fear; which, as they say, is a great motivator. But fear is also a 'negative' motivator, and gets old quickly. Setting and working toward positive goals, as you listed, provides a much more sustainable situation for the long haul. (Matt. 6:31-33)

Create a specific, worthy, lifetime goal and you'll have a strong motivation to get out of debt. One exercise that many people have found worthy is to seriously think about and write down what they would really like to be said about them in a eulogy.


I agree positive motivation > negative motivation. Honestly, we got out of debt because we wanted to better stewards of what God had given us.

I like the idea of a eulogy ChazzC. Good thoughts. :thumbsup:

#12
ChazzC

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To all:
Has anyone heard of Financial Peace University with Dave Ramsey? Thoughts on it?


Hi GoldenEagle,

In my opinion it depends... Much of his advice on getting out of debt is pretty solid, but much of his investment advice is not so solid.

#13
GoldenEagle

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To all:
Has anyone heard of Financial Peace University with Dave Ramsey? Thoughts on it?


Hi GoldenEagle,

In my opinion it depends... Much of his advice on getting out of debt is pretty solid, but much of his investment advice is not so solid.


Yes I'd say listen to him until you get out of debt. When it comes to investing get some better advice.

#14
GoldenEagle

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I really like your post Golden Eagle. Even read that first book. There are lots of ways to make money, discipline is the most common problem.

Mike.


Thank Mike. :) I agree that discipline is the key.

#15
Guest_bobby027_*

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Educating your self is really a very tips that i never though i realize that in that way i learn a lot.In Helsinki Finland there are many people now are really into debt and some are encountering konkurssi or bankruptcy and many of them also want to get out of debt.Good thing that i can share it to those people so that they can have idea on getting out of debt.






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