“Debt is normal. Be weird!” – Dave Ramsey
One of the most challenging emotions that accompanies debt is the feeling of hopelessness that can fall over you when you look at your statements. That feeling can be paralyzing; stopping us from making any significant moves to change our situation because it feels as though there’s nothing we can do that will actually make a difference. When you’re trapped in the debt cycle, it can be hard to imagine a time when you won’t be in the red, but the reality is that no matter what choices you’ve made in the past, and no matter what curve-balls life has dealt you, there is always something you can do today, that will have a positive impact on your future.
If getting out of debt is something that you’re determined to do, here are 7 steps that can help you get there:
- Take Charge of Your Money
I’m a firm believer that managing money doesn’t need to be complicated. Simple systems are effective because they’re easy to set up, and easy to manage. If you can automate your savings and your bill payments as much as possible, it makes managing your money even easier. Start by figuring out how much money you have coming in and going out each month, and then give any “spare” dollars a purpose. Make sure you use past statements rather than your memory to come up with the numbers – most people hugely underestimate how much they spend on gas, groceries and eating out each month.
- Find Your “Spare Cash”
Subtract the amount you have going out each month from the amount coming in. If the answer is positive then decide how much of that amount you’re willing to commit to paying down debt (if the answer is negative then you need to figure out how you can either simplify your expenses, or increase your income). Set up a system that forces you to make those extra payments on payday rather than waiting to the end of the month, when often, there’s no money left.
Challenge yourself to “create” extra money by simplifying your expenses or taking on a part-time job to boost your income.
- Create a Saving Habit
It seems counter-intuitive to put money into savings when you have debt costing you money, but there’s a psychological factor to debt that often gets overlooked. If you’re used to having no money and being in debt, it can be surprisingly hard to build up savings because your instinct is often to spend what’s in the account rather than leave it there. (Author, T. Harv Eker calls this our “money thermostat”.) The other argument for building up savings is that life is unpredictable, and so there’s a good chance that while you’re on your journey out of debt, you’re going to come up against an unexpected event that you won’t have budgeted for. Having to borrow from a credit card or line of credit that you’ve just spent months paying off can be extremely demoralizing, whereas being able to borrow from yourself is empowering.
- Start a “Debt Snowball”
Dave Ramsey coined the phrase “debt snowball” to describe his process for systematically attacking and eliminating debt. If you’re committed to getting out of debt, the snowball approach is extremely effective and thousands of people (including me!) have used it successfully to conquer their debt mountain. I’ll be writing a post on how to use the debt snowball in a couple of weeks, but if you want to get started, the first things you need to do are to create a list of your debts in order from smallest to largest and then determine how much extra money you could commit each month (on top of the minimum payments) to paying down your debts.
- Redefine Your Money Blueprint
I mentioned in #3 that, once you get used to being in debt it can be hard to adjust to having savings. This is because we each have a comfort zone with money (our money thermostat) and any time we step out of that comfort zone our subconscious mind will try to pull us back. Redefining your money blueprint means taking a good look at all the beliefs and habits that we have in relation to money, and ditching anything that isn’t going to help us improve our situation. For example, if you avoid actively managing your money because you think it’s complicated or boring, then finding a reason that makes managing your money more appealing means that you’ll be more likely to do it. Often our biggest obstacles are our own beliefs and habits. Changing them can have a huge impact on our own success.
- Choose a Strong Tribe
It’s said that we are the sum of the five people we spend the most time with. Our friends and family can be our biggest allies and supporters, but they can also be surprisingly large obstacles to creating change. If you’re committed to getting out of debt but your closest friends are happy to stay in the debt cycle, then they may not support your decision to change because it makes them feel badly about their choices. Change isn’t easy and surrounding yourself with people who resemble the person you’re trying to become, rather than the person you’ve decided not to be, makes the journey a lot easier.
- Take Action
Someone told me once that there are two times that people quit: right before they start and right before they succeed. Change isn’t easy. Taking the first step is one of the hardest parts of the process, and it’s the step that often people procrastinate on. They wait for the right time, the right team, the right amount of knowledge, and every day that they wait, it keeps them away from their goal. If you’re determined to get out of debt then the time to start is now. Don’t worry about having every detail of your plan perfectly prepared, don’t worry about the voices that say you can’t do it, just commit to the journey and get moving. Everything else will fall into place.