Debt is the great crippler. It’s very difficult to achieve your financial goals when you are dragging around a load of credit card obligations. Quick – how much will you pay this month to credit card companies? What else could you be doing with that money to brighten your life and secure your future?
No matter how much money you owe, you can escape this virtual debtors prison. More and more Americans are making the break. Here’s how they do it.
Start small. Mathematically, it makes sense to first pay down your highest interest debts. But motivation is more important than math in this case. So, line up your bills from smallest to largest and focus on paying off the smallest first, before moving to the second smallest. Watching a balance spiral to zero in short order will give you a better sense of progress than seeing smaller shrinkage on a larger account.
Accept reality. Own the fact that you must now live absolutely within your income. If you can’t pay cash for it, you can’t afford it – whether “it” is a brand of peanut butter or a car. Progress is impossible without this deep understanding.
Involve the family. Everyone in the house must understand the objective, its importance, and the steps necessary to achieve the goal. Post a debt reduction gauge or some other visual indicator of the family’s progress.
Make a budget. Accounting for every dollar helps you identify waste, set priorities, and impose discipline on your spending. Managing your finances without a budget is like driving cross-country without a map.
Use cash. Just cash. No debit cards. Consider the envelope method: Take a bunch of envelopes and write a spending category on each, “Food,” “Gas,” et cetera, and place the budgeted amount of cash in the envelopes. When the cash allocated to a category for that month/week is gone, no more spending in that area – or pull cash from another envelope.
Get a second job. We’re all busy, but a few hours per week driving for Uber, delivering pizzas, or freelancing in your area of expertise can make a nice difference in your cash flow.
Understand the difference between wants and needs. Easy to say, but sometimes hard to do in our consumerist, ad-saturated world.
Shop til you drop. Put real effort into finding the best prices and deals on the things you need. If that means, for example, going to two different grocery stores to get the lowest total food bill, do it.
Liquidate your junk. If you haven’t used something in a year, sell it. Have a yard sale, put it on Craigslist — just get rid of it, and use the cash to pay down debt.
Build a support circle. Hang out with true friends – -people who will support your efforts, even it means socializing in the backyard instead of at the hottest restaurant in town.
Prioritizing debt reduction and adopting this plan will set you on the road to financial freedom. As a side benefit, you and your family will have a uniting purpose and feel good about your ability to accomplish hard things. Why not start today?
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.