“Getting Out Of Debt”
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5 Steps: To Get Out Of Debt
1. Make a conscious decision to stop borrowing money
If you want to get out of debt fast, you have to stop using debt to fund your lifestyle. This means no more financing furniture, no more signing up for credit cards, no more test driving brand new cars that you don’t have the cash to pay for. This will help you focus solely on the debt that you currently do have so that you can develop a game plan to pay it off quickly.
2. Establish a starter emergency fund of $1,000
You might be wondering, “Why is having an emergency fund important”? Well, if you don’t have any money in the bank and an emergency does happen, how are you going to pay for it? For most people, credit cards become the funding source for those emergencies. If you are trying to get out of debt then you need to put a buffer between you and debt; that is exactly what an emergency fund does..
3. Create a realistic budget and stick to it
Developing a budget that tracks your income and your expenses is crucial to getting out of debt in a short period of time. It will help you gauge where you are with your finances so that you can move forward toward your goal.
Creating a budget will expose whether you have money left over, which is called a surplus, or if you are in the negative, which is called a deficit. The goal is to increase your surplus and use that money to pay down your debt. Below are two ways that you can do this.
4. Organize your debts
This is paramount to mapping out a plan to pay off your debt. There are two approaches that are worth considering. The first is where you list your debts smallest to largest regardless of the interest rate. This is the method that we used to pay off $52,000 in debt in 18 months and it worked great because it helped us build momentum. When we paid off our first debt it put wind in our sails. Even though we had higher interest debts, this gave us something that was very powerful: the belief that we could get out of debt quickly if we stuck to the plan.
5. Throw any excess cash at your debt
When we were getting out of debt, there were several times where extra money fell in our laps that we had not factored into our debt elimination originally. We decided to take this cash and use it to tackle our debt. Some good examples would be a tax refund, selling a car, an inheritance, winning a bet, etc. The more cash you can put towards your debt, the faster it will disappear.
Debt doesn’t have to be forever. Develop your financial game plan and start your journey toward being debt-free today.