Chasing the Bull

Worrying about debt is no fun. There were times in college when I would unplug my phone in order to avoid listening to some jerk across the world tell me what a bad person I was simply because I could not pay my bills on time. I never defaulted on a bill, but there were a few times that I wondered if I would ever get out of debt.

Getting out of debt really involves a few basic steps.

1. Stop incurring new debt - If you continually buy things that you do not need and cannot afford, you will never accomplish this goal. The primary reason your debt is out of control is because you keep adding to it. You do not need credit cards. Period! If you cannot pay for it in cash, you do not need it. Your grandparents did not need them and neither do you.

2. Establish an emergency fund - The excuse most people have when talking about needing a credit card is that they only use them “in emergencies”. It is funny how that $5 coffee from Starbucks, or that 6-pack of Kronenburg becomes an emergency on your way to work or home. Save up $1,000 for true emergencies and then you will not have any excuses NOT to cut up your credit cards. This can take a few weeks, or a month or two, so have patience. Ideally, cash should be used for emergencies, not credit.

3. Develop a Debt Snowball - Dave Ramsey has developed an effective, yet simple, method to reduce debt faster.

• Order your debts from the lowest balance to the highest balance.
• Determine an amount of money to pay toward debts each month.
• Pay the minimum payment on all debts except for the one with the lowest balance.
• Attack the debt with the lowest balance with any extra money that you receive.
• When that debt is eliminated, do not change the monthly amount used to pay debts, but apply all additional funds to the debt with the next smallest balance.

While these steps may seam simplistic, I can personally vouch for their effectiveness. During the 13 weeks that my wife and I attended Financial Peace University, we eliminated $6,000 of consumer debt without an increase in pay. These simple steps work. Following them can help you to become financially free.

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