Unlike the common misconception about getting out of debt, it will take much more than just frugality to get it done. Yes, you need to be frugal and spend less, but you also have to make some sacrifices. I’m going to get REAL about how to get out of debt. No more “take lunches to work instead of eating out” type of stuff that you see all the time. I’m going to list some tough changes that may need to be done in order for you to truly get out of debt.
One thing to keep in mind is that being in debt is not something that you have to deal with for the rest of your life. There is a light at the end of that long and sometimes dark tunnel. Trying to overcome your debt for a long period of time can take its toll on your credit and on your morale. The path towards being debt free can be an uncomfortable one filled with obstructions and occasional setbacks. That’s why many people put off or don’t succeed with paying off their debt.
Let’s get REAL about getting out of DEBT:
Get Rid of Unnecessary Things –
You should seriously consider eliminating things that you don’t really need to live such as cable TV, high-speed internet, dining out, going to the movies or concerts, alcohol, cigarettes, subscriptions, memberships, buying new clothes or accessories, etc. Maybe you could get rid of your cell phone. Cancel your service plan and sell the phone or at least switch to a cheaper cell phone plan to save money each month. You should make some sacrifices if you want to get out of debt for good.
Get Rid of or Trade-in Big Ticket Items –
Do you have a newer car or even two in your driveway? Most American families do. You can reduce your total debt by selling your vehicle and getting one that’s less expensive. If you can get $19,000 for your vehicle when you sell it, and you can find a $10,000 used car somewhere, then you just came into $9,000. If your family currently has two cars maybe you should consider selling one of them. Just think about how much extra money would be available to pay down those other bills.
You can further apply this to quads, boats, jet-skis, snowmobiles, motorcycles, or any other mode of transportation or frivolous “toy”. If you’re in debt, it’s time to seriously consider giving up these luxuries for now and putting that money towards paying down your debt.
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Sell “Almost” Everything You Own –
When your big-ticket items have been either sold off or traded-in for less expensive ones, you can start to accumulate even more money by selling things around your house that you truly don’t need. A good way to figure out what you do actually need is to carry around a notebook and write down every item that you use over the course of a week. It’s going to be less stuff than you think. The rest of the things that you don’t use regularly could be sold for a profit. It’s unnecessary stuff and it’s just dragging down your recovery efforts. Start selling at yard sales, flea markets, neighborhood communal garage sales, online sites like eBay or Craigslist. Put that newly earned money towards paying off your debts.
Organize a Plan –
In order to understand where all of your money goes, you need to start with the details. Anyone that considers paying down debt should learn to use some type of spreadsheet like in Excel. This can also be done using a word document on the computer or a simple paper notebook. List accurate information on every payment to creditors that’s owed:
- The name of the creditor
- Address, location, and telephone number of creditor
- Account information
- Balance, interest rate, and monthly minimum payment amount
You Need to Have an Emergency Savings –
Most people have problems getting out of debt because they start making payments against the debt and then something happens, i.e. a car breaks down, one of the kids gets sick or the water heater leaks, etc. A lot of people are living paycheck to paycheck so they don’t have any money in the bank to address these kinds of emergencies.
Getting real about paying off debt means acknowledging that emergencies will happen to you. You need to be prepared and create an emergency fund. Everyone should set aside some portion of their income as a safety net in case an emergency arises. The amount can add up quickly over a period of time. This money can be deposited into a savings account. Here are a few things to remember about starting an emergency fund:
- Consider yourself as a creditor
- The amount saved can be minimal
- This is the “pay yourself first” attitude
You will NEVER be successful at paying off your debt if you’re adding debt back onto the pile!
Time to Cut out the Vacation –
You shouldn’t be taking any expensive vacations right now. You cannot afford these luxuries at the moment. Your top priority should be paying off your debt, not worrying about where you are going to vacation this year. The vacations can wait until you are in a better financial place. If you just need to relax and unwind, try doing a Staycation instead where you stay home and participate in leisure activities that are close to you.
No Major Home Renovations –
You’re going to have to make some sacrifices and get creative about it! This means that any non-essential home improvements will have to wait, and you will need to step through your expenses one-by-one to find ways to trim the budget and help your cash flow. You don’t need to add on that back patio that you want so badly. It can wait! Worry about paying off your debt first and then put that new cash flow into fixing up your house when you’re debt-free.
Storing All Documents –
Everyone should keep each statement on a bill for verification in the future. That goes for receipts, checking account info, and banking information. Mistakes can happen with a creditor where they overcharged you on a late payment or made a mistake crediting your balance with a payment made.
A small safe is a great choice for keeping personal information stored. This can include checkbooks, social security cards, passports, vehicle titles, and similar documents that need to be kept under lock and key. A cardboard box can be used to store monthly statements from creditors. Receipts can be stored with payments made on those bills in a filing cabinet. Payments on tax debt can be stored this way for reference in the future if a situation should arise with the IRS. Never throw away anything on paper that has been concerned with money.
Pay the Most Important Bills First –
Some bills must be paid on time to avoid further problems. Those that are most important can be where you live (mortgage or rent) and how you get to work (transportation). Things that you can pay second can include phone service, loan payments, credit card debt, and similar creditors.
Always pay those bills that have priority over others first. You need the utilities to stay on, but you can do without that credit card at the clothing store. Priorities must come first and everything else falls second. Shelter, food, transportation to keep a job, major household utilities, etc. are top priorities and need to be handled first, and then you can pay off high-interest debt.
Stick To Your Goals –
Success begins with the ability to stay focused. People have a tendency to break goals after they start them. What looks easy on paper can be hard to accomplish in real life. Nothing worth doing comes easy! Getting into debt is much easier than paying your way out of it.
Fulfilling the goal of becoming debt free takes a lot of sacrifices. You have to be willing to accept a reduced standard of living for a period of time. This means limiting meals out and limiting entertainment such as going out to the movies. This is where most people fall short of the game plan to get out of debt. These activities mentioned cost money and it all adds up!
Utilize Income Resources –
Every creditor that you pay off will free up more income to pay off the others. Each time you pay off a creditor it’s time to celebrate. You deserve it for another accomplishment towards becoming debt free. Here are some other ideas to help you reach that ultimate goal of having zero debt:
- Terminate that cell phone plan and sell the phone for cash or switch to a cheaper monthly plan. Is unlimited Texting a priority?
- Cancel cable or satellite television to pay down debt. Watch DVD movies or use an antenna for local free stations instead.
- Use energy efficiency at home with lighting (CFL bulbs) and appliances.
- Sell that second vehicle to eliminate the loan.
- Buy used items to avoid high retail prices.
- Use tax refunds to pay off debt.
- Find a second source of income.
Paying down debt can be one of the hardest things most people will ever face. It can be easy to get into serious debt, but extremely difficult to become free of it. Trying to impress others with fancy and expensive toys while you are in debt can get you into serious financial trouble. It’s time to stop pretending that everything is okay money-wise.
Learning to be frugal can help you eliminate debt, but you will still need to make some difficult decisions and make sacrifices along the way. The ability to avoid temptation and to say NO to big-ticket items is the secret of success in truly becoming debt-free. This won’t last forever and once you are back on track you can get that cell phone plan again and go back to taking nice vacations, but getting out of debt should be your TOP priority.