Chasing the Bull

When I began studying personal finance and money management, the first thing I wanted to learn was how to become debt free. I had over $20,000 in consumer and student loan debt and could truly feel the weight that this burden was placing on my life. Like too many Americans, I choose to ignore my problems until I could bear it no more. Recently, a friend confided in me that he wanted to get out of debt, but he did not really know where to start.

If you really want to become debt free, the first thing you need to do is stop incurring new debt. After working my “debt free plan” for a few months now, this step seems pretty obvious. Apparently it is not! In order to actually begin chipping away at your balances, you must stop using credit.

“But what about emergencies”, I hear you asking. If you want this to work, then you need to re-define necessity. What I mean by that is you must decide what constitutes a “real” emergency before you begin. It is completely a personal choice that truly depends on what you value most. For me, having no consumer debt holding me back is much more important than chicken wings and beer with my buddies after softball. I define an emergency as something that must be addressed (paid for) immediately or I will lose my house, have my electricity cut off, starve my family, endanger my (or my family’s ) health, or not be able to get to work. Almost anything else can wait until I have the cash to pay for the emergency (or should I say unplanned event).

Believe me, learning how to become debt free is extremely challenging. You must visualize what your life will be like once you have achieved this goal. The truth is that you can do this but you have to start somewhere. I suggest you start by not incurring any new debt; then you can begin to deal with the debt that you already have.

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It is no secret that one of my favorite personal finance blogs is MiB. Hank does such a great job writing about subjects that really hit close to home.

If you have not checked out MiB lately, you owe it to yourself to spend a few hours catching up. When not debunking the 25 most outrageous money myths, Hank is developing really cool widgets that try and give you a true value of your blog based of traffic, links, etc. He is even hosting a huge contest, along with Free From Broke, in which you can win the following prizes:

$125 in cash

Books
How to Finance Your Invention or Great Idea

The Boss’s Survival Guide

One of the ways to earn additional entries into the contest is to discuss “The Things That I have Learned This Year”.

Over the past year, I have come to realize that my family is the most important thing in the world. When I was in my 20s, I had one goal; make money so I could retire early. What I failed to understand is that if I did not have such a wonderful family, retirement would not have been as wonderful as it will be.

Weekends are now filled with games of “Chase”, which involves me running after my 2 year-old son, pretending that I cannot catch him, playing with Thomas the Tank Engine, throwing a Nerf football, and watching the Veggie Tales.

And to be honest, I could not be any happier!

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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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