How-To get out of Debt, Stop Spending Part 1
In the article How-To Figure Out If You’re In Debt we looked at ways to determine if you are in debt. Realizing that you are in debt is the first step on your journey to debt freedom. Missing payments, receiving collections calls, not having any savings, and having a negative net worth are the signs that you have a problem.
The debt could have happened for any number of reasons. The past is the past and it’s time to move forward. The only way to get out of debt is to take actions in your life to stop the debt from increasing, and designing a plan that will allow you to repay the debt.
Stop using credit cards
This may sound like a no brainer, but you’d be amazed at how many people keep using credit cards even though they know they have a problem with debt. The convenience, the security, and the reward points are just some of the reasons given for continuing to slide deeper into debt.
If you are tired of debt and are ready to take the next step, then it’s time to make a sacrifice. Reading the title of this section will give you some insight into what is about to happen next. It’s time to take the scissors out of your junk drawer and put them to use. Hold the card in the hand opposite of your cutting hand. Open the scissors and bring the credit card in contact with the shiny blades. Gently squeeze the scissors using a normal cutting motion. Please close your eyes so no one will see you crying. Continue to squeeze the scissors until the card is cut into two pieces. Repeat this procedure on each piece until the card has been reduced to confetti. Remember to blot your eyes to disguise your crying from your friends and family.
There are many ways to stop using a credit card; the one detailed above is my favorite. An easy second option is to place the card in a cup of water and freeze it. My wife has her card cryogenically frozen in our freezer. It offers a reminder of our past sins. The kicker with Han Soloing a credit card is the time is takes to wait for the ice to thaw. A microwave will destroy the card; boiling it in water will destroy it as well. By the time the card has emerged from its icy shell the buying impulse should have passed.
Spend less than you Earn
This is one of the hardest steps for broke people to understand. If you ever want to get out of debt or build up savings, then you need to spend LESS than you EARN.
Simple math is all you need to understand this. If you bring home $4,000 per month and spend $4,300 between bills and living expenses, you have a $300 deficit. $300 of debt every month can really add up. After a year you’d be $3,600 further in debt. Now if you made $4,000 per month and only spent $3,700, you’d have a surplus of $300. That $300 could be put into savings or used to pay down debt. Again you’d have $3,600 at the end of the year but the money has either paid down debt or increased your savings.
Little changes in your spending can really add up over time. Check these frugal hacks for a few ideas.
The first step to getting out of debt is to stop adding to the debt. Learning to live within your means and not making purchases with money you don’t have is a sure way to start your journey toward debt freedom.
In Stop the spiral of debt part 2 we will discuss the Emergency Fund. The emergency fund is what will enable you to never have to use a credit card again.