This is not a
step-by-step guide to reducing debt. Rather, it is a collection of a lot of the
wisdom I have read so far on this topic and a list of some of the things that
worked for us.
5. Change your spending habits:
7. Embrace a simple, frugal lifestyle:
As you go through
the list, I would recommend sorting it out into things that will
definitely work for you and things that could possibly work for you.
Start implementing the things that will work for you right away and
start working on incorporating the others when possible.
Believe me, soon it
will become an obsession (if it already isn’t!) and slowly but surely you will
be free of debt. And that feeling is worth any short-term pain you have to go
through.
1. Stop adding more
debt.
No kidding right?
Well, if it’s so simple why aren’t you doing it? Think of your debt as a small hill of dirt in
your back yard. To get rid of that dirt hill, you need to dig out a shovel at a
time. Now imagine for every 2-3 shovels of dirt that you dig out, you toss 4
shovels back on. How long will it take to get rid of that little hill? Piling
on more debt while you are trying to get out of it doesn’t make much sense
either.
2.
Get rid of your credit cards.
One
of the biggest downfalls that most of us have is the reliance on credit cards.
Unlike spending real cash, when you charge it to a card you don’t feel the
burn. So if you cannot control how much you spend on your card, then cut up
your cards, leave them locked up at home, freeze them or bury them until you
are out of debt. (Note: Don’t close the accounts since that can result
in reducing your credit score!)
“When I was in college, I went a
little wild with student credit cards. I learned the hard way that I needed
some control, so I froze the cards in a large pan of water. If I wanted or
needed something badly enough to wait for the cards to thaw out, then it was
probably worth purchasing. If not, I saved the dough. My mom still laughs about
this, but I saved thousands in forgone impulse purchases.” — Kelly Colucci, Cumming, GA.
3.
Change your attitude:
Like
everything else in life, getting out of debt is heavily dependent on your
attitude. Switch to a “Can Do” attitude. Stop giving into the victim mentality
or self-doubts of whether you can do it. Start attacking debt and don’t stop
until it's all gone.
4.
Stay busy:
An
idle mind is a devil’s workshop and a retailer’s dream. If you go to the mall
just because you are bored, you are bound to end up buying stuff you likely
don’t need. If you laze in front of the TV doing nothing, then the advertisers
are bound to instill a yearning for something that you wouldn’t have wanted
otherwise. Throwing away money to keep yourself entertained when you could be
using that time a lot more productively just won’t cut it if you are serious
about getting out of debt.
5. Change your spending habits:
Do
you always plan before you buy something or do you just pick things up? Do you
ask yourself if you really “need” it, or justify your “wants” and keep
indulging yourself? Do you spend an excessive amount of money on showing off to
your friends? Take a long hard look at your spending habits and fix any
shortcomings that you see.
6.
Cut your spending:
Can
you still save some money after all of your bills are paid? For instance, when
you look at your groceries, can you replace some brands with generics so you
can save some cash? Can you stock up during sales to save some money? How about
making sure you use your utilities wisely to save on water, electricity and gas
bills? Look at all aspects of your spending to pinch some more money out that
you can throw at debt.
7. Embrace a simple, frugal lifestyle:
We
are in a land of excess. We believe that we need a lot of things to survive.
But in reality, we can get on by with very little. The more of the excesses you
can trim out the sooner you will be out of debt. Yes, life will seem a bit drab
without some of the indulgences you are used to. It’s your call which one you
like more – temporary indulgences and sleepless nights worrying over debt, or a
few sacrifices now to be free of debt issues for the rest of your life!
8.
Always lookout to improve your current income:
The
more the money you make, the more you will have leftover to throw at your debt.
So always look for opportunities for picking up tasks with a higher commission,
or overtime pay or something that will result in a bonus. Take your job
seriously and work hard every day, at some point, it will pay off for you.
9.
Create additional sources of income:
Sometimes
it is not easy to simply increase your current income at your day job. If
that’s the case, look at means to create additional sources of income. Do you have
a hobby that you can monetize? Do you have skills (musician, carpenter, writer,
etc.) that you can use to get some part-time gigs? Do you have computer
knowledge that you can use online? Creating additional sources of
income not only helps you get out of
debt but provides you with a better cushion to survive through primary job
loss.
10.
Build an emergency fund:
As
you attack your debt, remember to put away a small amount for the rainy day. If
something unexpected comes along or if you are forced to borrow money again,
you will have a rough time getting out of debt. So stash away small amounts of
money in an emergency fund, and make sure you use it – well, only for
emergencies!
11. Avoid paying fees when
possible:
Get
organized. Make sure you are paying your bills on time. There is no point in
paying fees in addition to interest! Also, look out for other options where you
can save on fees – for instance, going into a bank to withdraw money may seem
like a hassle, but is it really worth spending $3 in ATM fees every time you
withdraw money? Booking your movie tickets online may seem convenient, but is
it really worth paying an extra dollar for the ticket?
12.
Use balance transfers:
Call
up every single one of the credit card companies and ask them if they can lower
your interest rate or offer you special interest on balance transfer. Repeat
with all the credit cards you have, and consolidate your loans onto the cards
that offer the best interest rate. Watch out for the “balance transfer fees”
and make sure you are really coming out ahead. Again, do NOT close paid off
credit cards because it will lower your credit score!
13.
Make a budget:
A
budget is not really that difficult to make or follow. You don’t need fancy
software or tools, just a simple notebook and pen, or a trusted spreadsheet
program. List all your recurring bills like rent/mortgage, groceries,
utilities, bills and put a limit on it. Then create a category for
miscellaneous expenses to cover what you cannot plan for and an indulgence
category. If you don’t have enough for paying towards debt, tweak and tune
these categories, until you find enough.
14.
Reuse and recycle:
Reuse
and recycle whatever you can. I never buy garbage bags. Instead I have small
waste bins in my kitchen and bathrooms that I line with grocery bags. I don’t
care if someone thinks that is cheap – it saves me money and is a small way to
reduce my environmental footprint. So why should I bother about what snobs
think. And since they are smaller waste bins, they get cleaned our more
regularly, reducing the possibility of stench in the kitchen. You will be
amazed at how many different places you can apply the reuse and recycle
principle to save a few bucks!
15.
Make your intentions public:
When
you start digging into your debt, make your intentions public. Say it out loud
– maybe to your spouse or your family or friends. When people know that you are
tackling debt, they will give you dirty looks and lectures when you slip
up. It
may be an unsavory experience, but if it keeps you on track and gets you out
the hole faster, why not?
Maybe it will also stop them from enticing you to eat out or buy that new pair of pants!
Maybe it will also stop them from enticing you to eat out or buy that new pair of pants!
16.
Start a blog about your effort:
If
you are not comfortable about sharing it with the people you know, share it
with strangers! The internet makes it so easy to have an anonymous public
image! Use it! Create a blog and chart your progress. You can create free blogs
using software like blogger – it is fairly easy and you
don’t need to be tech-savvy to be able to do it. Nothing makes you obsessive
about getting rid of your debt like encouragement from a bunch of strangers
whom you have never met! Besides, depending on your success, you may be able to
monetize your blog and make it an additional source of income. Here are a few
blogs to get you started Blogging Away Debt, No Credit Needed, The Simple Dollar.
A simple search for “blog debt” on Google will show you many more if you are
interested.
17.
Surround yourself with the right type of people:
If
you are surrounded by people who keep spending, then it is difficult to get out
of the consumerist mentality and slip into the more sensible mentality of
living within your means. This may mean changing friends or keeping your
distance from those that influence you negatively. It is a very difficult tip
to follow, but a necessary one, if you want to really get out of debt.
18.
Move!
Drastic
times require drastic measures! If you are really deep into debt you might want
to consider more drastic steps like moving to a city with a lower cost of
living, to a smaller house, to an apartment with lower rent, etc.
19.
If something is available for free, don’t pay for it — throw the money at your debt instead!
If
you can take public transportation to get around, skip the driving. Better yet,
ride your bike and get a little workout at the same time. At the end of the
month, you may have used one less tank of gas. Make sure you bump up your debt
repayment by that amount. It may not seem like much, but over a course of time,
this can add up beautifully to free you from debt a lot sooner.
20. Always pay more than the minimum
payment toward your debt.
If
you only pay minimum payments, you will be old and gray before you pay off the
debt. Here is a calculator that shows the true cost of paying minimum. For
example, if you only pay the minimum payment on a credit card loan of just
$1000, at an APR of 18%, then it will take you around 13 years to
pay off that debt. In that time you would have paid $1,115.41 in
interest. That is more than the principal borrowed! Imagine how much worse it
is with larger loans. So always try to make more than the minimum payments if
you are serious about getting rid of debt.
21. Don’t hesitate to take help from
loved ones:
When
you are down and battling with debt, if loved ones offer to help don’t hesitate
to accept. This could be in cash or kind. For instance, can your mother babysit
your kids so you can save some money that is spent on day care and apply it to
your debt? Can your parents loan you some money at low or zero interest that
will help you reduce the amount you pay in debt? If you are just starting out,
can you move back with your parents for a few months and throw the rent money
towards your debt? These may be very tough but they can save you several years
of slaving to pay off your debt.
22.
Make it automatic/manual:
I
know that’s ambiguous, but pick what works for you. If it hurts you every month
to go over the bills and make the payments, then just set up automatic payments
so that a fixed portion of your income goes towards paying the debt. Your sole
responsibility then is to make sure that your bank balance stays above the
required amount and to avoid overdraft fees. On the other hand, if it gives you
pleasure to watch your debt shrink and motivates you to keep at it, then make
it manual. Pay your bills by yourself each month.
Ultimately,
getting rid of debt is like going on a financial diet; it is not easy and the
temptations to give in are high. There will be that tiny voice in your head
that says, “what’s the point of money if you can’t enjoy life?” But if you are
in debt, and constantly worrying about it, you are in fact enslaved to your
financial miseries. Unless you make some sacrifices, it is unlikely that you
will be able to get out of it. Not
all of these tips will work for you, so pick what does and stick to it!
Other
Creative Ideas to Get Out of Debt
23.
Ask for a raise.
What
do you have to lose? You miss 100% of the shots you don’t take.
24.
Learn to say “no.”
Make
it a new part of your vocabulary. Love it. Embrace it. Because when it comes to
spending money, you’ll be saying it quite often.
No comments