Dreams of getting out of debt are not so rare these days, but stories of triumph we hear less frequently. Debt freedom is attainable, but it requires extreme dedication and a lot of focus. Here is a guideline, including six steps to dig yourself out of the debt hole.
Create a spending record. A spending record is a great way to figure out where you can cut back on spending. This record should include everything from monthly bills to a pack of gum. After all money is money no matter how small. Even a dollar spent here or there can add up, and that money spent is money that could be helping you pay off your debt.
Be sure to carry your spending record with you in hopes of making it the most accurate. At times it may seem tedious, and you may feel like it is not important. However, this spending record can help shine light on your debt. It will allow you to figure out where you can start cutting back, and show you there is a way to start paying off your debt.
Create a realistic budget. The keyword here is realistic. While you are focusing on cutting out extra spending it is important to keep in mind that when we make unrealistic expectations for ourselves, we are more likely to fail. Since you have already created a record of your spending from the past few months, you should have a rough guide to help you through this step. A realistic budget should include all of your minimum payments and a budgeted amount of spending money including enough money for food and transportation.
Set up an emergency fund. Your immediate reaction might be that you don’t have any funds to set aside, and you feel confident an emergency fund can’t be started today or any day in your near future. You are mistaken, and you need to make your emergency fund a priority. This is when you stop purchasing small daily indulgences that add up, and you start saving for car problems or medical bills.
A lot of people attempt to avoid large purchases without seriously considering their necessity first, but often people find a $4 or $5 latte a reasonable purchase. While it is nice to indulge every once in awhile, $5 even just three times a week adds up to be a considerable amount by the end of the month. Feed your latte addiction every once in awhile, but set $5 aside three times a week, and you will be surprised how fast your emergency fund will grow.
Pay off small debts first. Each month you have to pay your minimum payments on your credit cards and various other expenses, but it is important to prioritize your debt. When we dilute our focus by attempting to focus on several different bills at the same time it becomes difficult to rid yourself of any of your debt. Focus your attention on your small balance first. At this point you do not need to focus your attention on interest unless you have two balances that are the same.
Now, you want to put all your extra effort into paying this smaller balance off. When you focus your attention on one bill you are much likelier to see drastic improvement, and hopefully this will motivate you to continue to pay off your debt. When you focus on trying to pay off all of your debt at once it can seem like an insurmountable task, but when you focus and start small it can show you how doable getting rid of your debt really is.
Leave your credit card at home. Your credit card should only help build your credit. Therefore you do not need it in your wallet to buy something at the spur of the moment. Credit cards can be great if you use them responsibly, but they can become your worst enemy in a matter of moments. Unfortunately, most of us don’t use them to our advantage, and we end up digging ourselves into more debt.
Your credit card should only be used for calculated purchases that can immediately be paid off, or that can be paid off at the end of the month each month. You do not want to make purchases that you will end up paying interest on, and that will increase your overall debt. Most of us deal with a need for instant gratification, and our credit card seems to usually be the means for that. Do yourself a favor and leave your credit card in a safe place at home. Take the temptation out of the equation.
Keep moving forward, and making progress. After awhile some of us start to fall back into our old habits, but it is important to maintain your focus. Your goal of debt freedom is within your reach. Do not let that big flat screen or those daily coffee breaks cloud your judgment. If you follow these steps then it is possible to rid yourself of your debt.
Always keep your main goal in mind, and do not give into the need for instant gratification. Every day can be seen as progress when you cut back your spending and you are putting your money where it counts. Become a success story, and share your own personal journey with others. This is your chance to gain debt freedom. Don’t let another day pass without making progress.
Susan Parcells works for BlackLine Systems. BlackLine produces account reconciliation software. Over 70,000 users employ BlackLine in their day-to-day work.