Everyone wants to get out of debt. Debt is like a python squeezing the life out of family finances. Once that hideous snake gets a solid grip it’s hard to get free.
Dumping debt is hard but it is possible. We’ve been free from consumer debt for several years. The strategies we used, like everything we do, are simple. Complex systems might sell books and courses but they rarely produce results.
Here are the seven simple strategies that we used to permanently rid ourselves of debt.
- Determine Why You Want Get Out Of Debt
- Create a Budget
- Decide Between a Debt Snowball or a Debt Avalanche
- Make a Declaration of Independence from Debt
- Scrutinize Future Spending
- Generate New Sources of Income
- Practice Tortoise Tenacity
Determine Why You Want To Get Out Of Debt
Debt is not dumb. It is risky and it can be dangerous but it’s not “dumb” as one famous person declares. Businesses often use debt strategically to generate wealth. There is more than one way to peel a potato!
There is good debt and bad debt.
Credit card debt is bad debt. Charging sushi and sake and paying for it over a few months is a terrible financial strategy.
Getting a mortgage to buy real estate can be a very good thing. It also can be a very bad thing. One size does not fit all.
You can’t want to get out of debt because you’re drunk on Ramsey-flavored Kool-Aid. You better get a better reason than “Dave says debt is dumb” or you will get your southside kicked all over the playground!
Why do you want to dump debt? Dig deep. Be honest with yourself. Write it down. Don’t get too cute. Keep it simple. Do you finally realize that excessive debt is stifling your ability to generate wealth? Surely you can come up with a legitimate reason that puts steel in your spine!
Create A Budget
Yes, the dreaded B-word. Do you know how much money you spent on groceries last month? How about restaurants? Gasoline?
Budgets get a very bad rap. A budget is not a torture device designed to suck the life out of you. You are the maestro of your budget. Budgets are not masters but servants.
John Maxwell famously stated that “A budget is telling your money where to go instead of asking where it went. You’re the boss, not the budget.
Stop falling into the trap of Dr. Frankenstein. The monster is not Frankenstein. The doctor is Victor Frankenstein. The monster is the monster. The good doctor created something that he could not control. Don’t be like Victor Frankenstein!
Create a zero dollar-based budget. In a zero dollar-based budget you simply spend every dollar on paper before the month begins. Then you follow the plan that you created.
Budget creation is both art and science. They require some time and effort.
The benefit of budgeting is that typically “lost” money is discovered.
Do you have adequate resources to pay at least the minimum payment for all of your bills? If not, you will need to either cut some fat or earn some extra money.
Toughen up and get cracking.
Debt Snowball Or Debt Avalanche
Dave Ramsey popularized the snowball method. The avalanche is promoted by those who lean towards mathematics.
The best one is whichever one you will use without punking out and blaming the tool for your debt mess.
With a debt snowball, the smallest debt is in the cross-hairs. This method is behaviorally based. You get some small wins under your belt and harness momentum.
List your debts from smallest to largest. The minimum amount due is paid on each. any extra money from your budget is applied to the smallest debt as well. Once the smallest debt is paid in full, the minimum payment, plus any extra from the budget, is applied to the next smallest in line.
This process continues until the debts are fully eradicated.
The avalanche works in a similar manner. Debts in an avalanche are racked and stacked by interest rate size. Debts with the highest interest rate are paid down first. Once the debt with the highest interest rate is paid in full then all focus goes to the next one in line.
At first blush, the avalanche makes sense. With the avalanche, the assumption is that we’re rational. Most humans are anything but rational when money is involved.
Pick one and get busy!
Mortgages are excluded from both methods. Everything else is fair game.
Declaration of Independence From Debt
Your debt tool should provide a debt freedom date. If it doesn’t get a ball-park figure. This is the date that you should pay your final debt!
Why wait until it actually happens before making a debt-freedom declaration?
The Founding Fathers of the United States signed the Declaration of Independence in 1776 and the Treaty of Paris was not signed until 1783. They fought a brutal battle for around seven years.
Debt freedom should come quicker than seven years for you!
Formalize your commitment.
Declare your freedom today!
Scrutinize Future Spending
I ran a marathon about five years ago. It was challenging! I had participated in six half-marathons prior to the full marathon.
A half is easy compared to a full.
During my training, I meticulously planned my running schedule. My food intake, not so much. Despite running five days a week I packed on about ten pounds!
I assumed that I could eat whatever I wanted since I was running about thirty-five miles per week.
Wrong!
It’s the same with debt.
Excess weight is simply proof that we’ve been eating or drinking recreationally. Consumer debt is proof that we’re discontent with our wages and living beyond our means.
Spending must stop or at least be severely minimized while we’re waging war on debt.
Debt freedom requires uncomfortable effort.
Decide in your budget what’s going to be spent. If you did not enter something in the budget resist (with all our might) buying it. If you really want it or need it then put it in the budget for next month. That’s kind of like a monetary cold shower (if you know what I mean).
Prioritize debt destruction.
Generate New Sources of Income
Expenses can only be cut so much. There will be times when more money is needed to stay on track or to accelerate the process.
There are dozens of ways to generate new income.
Perhaps your employer could offer some overtime. Time and a half is a sweet way to earn some extra cash without getting too far out of your comfort zone.
Stay-at-home moms can offer in-home daycare. My wife did that for a couple of years. Our very awesome neighbor saved about $50 per week and my wife earned about $75 per week.
Everyone right now is hiring. New employees are in the catbird’s seat. Plus weekend help is hard to come by for employers. Pick up a weekend shift and accelerate your debt reduction plan.
Here is an article that I wrote on side hustle ideas. Making money now is so much easier than it used to be.
Don’t wear yourself out to get rich;
because you know better, stop!
Proverbs 23:4 (CSB)
Don’t kill yourself with this step. Put your family first.
Practice Tortoise Tenacity
Slow and steady wins the race.
I’ve seen many families and individuals get fired up with gazelle-like intensity. They come out of the gate sprinting only to quickly get fatigued and fade away.
My first half-marathon was the Chicago Rock & Roll. I was pumped for the race! Adrenaline was coursing through my body and I was ready, baby!
I started out way too fast. My pace is personal. I allowed the hype of the crowd and the event to override my natural abilities. My breathing was labored the entire race and I needed to stop for walk breaks. It was an absolute disaster!
The same applies here.
Banks Are Not Hyenas
You’re not a gazelle. Lenders are not hyenas.
Running like a wild animal is often unnecessary.
I’ve been through FPU with dozens of families over the years. Gazelle-like intensity is too much for most families.
Tortoise tenacity is greater than gazelle intensity.
Build fun and games into your budget.
Furthermore, everyone to whom God has given riches and wealth, He has also allowed him to enjoy them, take his reward, and rejoice in his labor. This is a gift of God,
ecclesiastes 5:19
Getting out of debt, at the expense of everything else in life, is a recipe for disaster.
You must bring balance to the financial force, young Padawan.
Patience is the ability to remain constant in spite of trying circumstances. Have patience in this battle! You don’t want to be the first to debt freedom if you’ve left your family in the dust!
Patience is required.
Debt freedom is worth the uncomfortable effort and the sacrifice.
John Maxwell once said that “He that thinketh he leadeth when no one is following, is merely taking a walk.”
Lead your family.
I dare you to profit!