Let’s be blunt. Debt is, more than anything else, the enemy of wealth.
While taking on some debt is a near certainty in everyone’s life – after all, not many of us can afford to pay cash for a house – debt is something that can be managed, reduced, and eventually eliminated from our financial lives.
But it won’t happen without a plan.
(This is the second article in the “7 Steps to Financial Security” series.)
Challenge Your Beliefs
Debt always presumes upon the future. If you go into debt, you are obligated to repay, yet you take on that obligation without knowing for certain whether you will be able to repay or not.
Challenge the belief that credit is an important part of your financial identity. Challenge the belief that the more credit cards you have, the better your lifestyle can be. Challenge the belief that anything is within your grasp if you can simply get the payments low enough.
Spend Less and Earn More
At its core, debt is simply what happens when people spend more money than they make. To get out of debt, then, there are only two things you can do: spend less or earn more. If you want to pay off debt quickly, you will probably have to do a little of both. It’s basic math.
Can you work an extra job at night, even for just a few months? Can you hold a garage sale or sell that old four-wheeler that’s been parked for the past year? Can you take a sack lunch to work instead of eating out every day? None of these little things can make a big difference on their own, but done together they can go a long way toward beginning to get your debt under control and allowing you to make extra payments to lower your debt level.
You’ve got to have a plan, though, and stick to it. You may need to adopt a “scorched earth” approach with your living expenses for awhile. However, the main thing is for you to make lifestyle changes as you see debt for the enemy it is. Once you slay the debt dragon, you’ll find you have more money left for saving, investing, and giving.
Taking Action
Open your wallet or purse and remove all the credit cards you carry with you. Lay them all out before you. Think through how much you owe on each card. Add it up – if it’s zero, we salute you! Ask yourself how dangerous your debt situation is. Before you put those credit cards back in your wallet… consider cutting them up!
Remember, debt – the flip side of compounding – is the enemy of wealth. You want your money working for you, not against you.
Debt-Free Retirement
The only absolute way to avoid the use of debt in the first place is to have a financial plan prepared at the beginning of each year that does not allow for the use of debt, and then for you to stick with that plan – no matter what.
To get out of the debt that you are already in, examine your current assets to see which ones could be sold in order to reduce debt. In the absence of assets to sell to eliminate debt, set up a repayment schedule and strictly adhere to it. Pre-commit any extra income or amounts from reduced expenses – that is, excess cash flow – to debt repayment. A credit counselor can be a good resource to help you.
As you make progress in getting out of debt, set a goal of having your house mortgage retire with you. In that way, you can take a lot of the stress and risk out of the best years of your life. A successful retirement is a debt-free retirement.
If you haven’t done so already, you’ll need to get your debt under control before you can start building wealth. Remember, the goal is to stop paying interest so you can start earning it.
Helpful resources for getting out of debt can be found at daveramsey.com and mastermoney.org.
