Debt is like a thief that slips into your home while you’re away and robs you of your security and self-worth. If you’ve every been in debt or are in debt right now, you know how destructive and painful it can be.
People get out of debt all the time. In the early days of my debt recovery, I paid off a few credit cards just to turn around and charge a few more things. I finally woke up and realized what I was doing, and knew if I didn’t stop this behavior, I would never end my cycle of debt.
[tweetthis]The answer isn’t to get out of debt. It’s to get out of debt and stay out of debt – forever.[/tweetthis]
The good news is you can get out of debt, and stay out of debt. Maybe you’re familiar with the model of “Saving Your Way Out of Debt?” In this post, I’m going to share the first five steps you can take right now that will help end the cycle of yo-yo debting.
How to Get Out of Debt and Stay There
Step 1: Don’t Deprive Yourself
Most people start the process of getting out of debt like they do a diet. They think they have to cut out everything that is fun or pleasurable. No more going out to eat, or to the movies; it all gets slashed from their lives.
But this is a huge set up for failure – just like it is when you apply deprivation to your diet plan. In the end, you set yourself up for a relapse.
That’s what happened at the beginning of my journey. I stopped shopping, paid off a bunch of debt, adhered to a strict budget, only to have the feelings of deprivation rear its ugly head, and out I ran, credit card in hand to the nearest Macy’s.
So how do you combat this problem?
You build a spending plan that includes your essential needs so you can enjoy your life while you’re getting out of debt.
Step 2: Stop Using Credit Cards
The only way to permanently free yourself from the chains of debt is to stop adding to it. You have to stop using credit cards – plain fact. Not using credit cards is the foundation of your financial house – a debt-free house.
You’re going to feel a lot of resistance to this step. I get it. I’ve been there.
You’re excited to pay off the debt, so you start quickly paying off your balances. But if you continue to use credit cards, this will only leave you stuck in the debt cycle for years to come.
[tweetthis]If you are committed to getting out debt and staying out of debt, you have to stop using credit cards.[/tweetthis]
Step 3: Start A Savings Account
[tweetthis]The biggest myth floating around – you can’t start saving until you’re free of debt. [/tweetthis]
Truth be told, saving right now is the key that will free you from the never-ending debt cycle – forever!
The key is moderation. Don’t go off gung-ho, depriving yourself and putting massive amounts of money on your debt. It will just blow up in your face.
Instead, open up a savings account and regularly (at a minimum of monthly) make a deposit.
You’re probably wondering where you’ll get the money to put into this savings account, right?
You’ll use the excess money you were planning on putting towards your debt. For a while, you’ll just pay the minimum balance until you amass $2000 into an emergency account and a reasonable amount into a play account. If you don’t have any extra, look to reducing your expenses. Check out some other easy methods to build your savings account.
The goal here is breaking the debt cycle and create a healthy relationship with money. Using this strategy to reduce debt and build an emergency fund, will finally put you on the path towards a better financial future.
Step 4: Spend Guilt Free
Now’s the time to spend the money you put into a “play” fund.
The money you set aside in this “play fund” is meant to be used, guilt free, for non-monthly expenses.
You’re using this money instead of using a credit card and incurring more debt. That’s guilt free spending at it’s best!
Step 5: Start Paying Off Debt
Once you’re no longer incurring any new debt, you’re saving monthly for emergencies and fun times, and you’ve got a solid spending plan, you’re ready to start eliminating debt.
I recommend the “snowball method” of repaying debt. Here’s how it works:
- Arrange all of your credit card debts from the lowest balance to the highest.
- Plan to pay minimum payments on all but one targeted debt.
- Designate an amount above the minimum payment you can apply to this one card.
To experience a win as soon as possible, pay the card with the lowest balance first. For example, if you have 10K on one card and $750 on another, pay the minimum on the 1oK and put any extra payments toward the card with $750.
When the first card is paid off, you’re going to feel elated – and you should! Give yourself a huge pat on the back.
Now roll the entire amount you were paying on the first card, into the payment on the 10K card. You’re paying the same amount each month towards your debt, but the amount “snowballs” until you’re eventually paying the whole amount toward the biggest and last card.
Use these tips to create your strategy for eliminating debt and building your savings. All the while, you’ll be improving your relationship with money. And that my friend is what it’s all about.