Imagine the things that you could do if you didn’t have any payments. Think about it. No credit card bill, no car payment, no student loans. Think about the fact that after bills for services like electricity, water and internet, you would be keeping the rest of your money. How much more would that be for you in one month? Five-hundred dollars? One thousand dollars? More? It doesn’t take an accountant to see that a change in your financial habits can change your life forever. So why doesn’t our culture encourage people to get out, and stay out, of debt? Why do I get frustrated looks when I advise people to stop their debt cycle? I believe this financially-crushing bad habit boils down to one character flaw in our society: we have become unable to delay gratification. It took me a while to figure out the most fundamental concepts, even though they are very basic and should really be taught in school. After struggling with debt myself, I’ve condensed my process into 4 NON-SCAMMY steps to getting out of debt. I’ll tell you about them, but let’s get a few things out of the way first.

A while back we talked about the negative effects debt has on us. It is dangerous and unnecessary to live in debt. I won’t go into further detail here, but if you missed that post, please read it and do the action items. We will be building off of the list of debts we made. This week we will be talking about the first things to do once you’ve got your list of debts and how much you are paying on them. Before we move on I will say this, if you are going further into debt by buying things on payments or credit, this post is not for you. It makes no sense to try to fill a bathtub with the drain unplugged. You might get ahead a little, but it’s just going to keep draining. So, please work on that before following the next steps. On the other hand, if you are someone who is living paycheck to paycheck, where a job loss would crush you within three months, this post is for you. This is the absolute first thing you have to do if you are pursuing financial peace of mind. Saving and investing will come later.


Step 1 – List the money coming IN

Step one of the 4 non-scammy steps to getting out of debt is to list your net income, meaning all money that comes to you after taxes have been paid. I list these at the top because it makes me feel good to start with income. Add them up and look at that nice big number. Income may come at different times throughout the month. I’ve had jobs where I got paid bi-weekly, and I’ve had jobs where I got paid on the 1st and 15th of every month. For those of you who get paid at different times each month, do your best to leave that sum alone until the first of the next month so that you can handle bills in a consistent way. You will need to figure out how to balance things depending on when you get paid. It might take some time to find what works, and you may need to get advice from someone who is financially successful to help you figure it out. Now that you have your money coming IN listed, it’s time to move on to step two.

Step 2 – List the money going OUT (ALL OF IT!)

Step two of the 4 non-scammy steps to getting out of debt is to list your bills and minimum payments. This is what we talked about last time, so you should already have this done. If you haven’t done it yet, here’s what you need to do. Write down everything that is a known expense each month. Electricity bill, cell phone, credit card payment, everything. Put the amount you pay on average for the variable ones, like utilities, and put the current minimum payments on the debts. I also include the day of the month it’s due so that if my wife picks up the budget, she will know what’s going on. I also want you to include your average groceries and gas money. Everything that you know you will spend during the month goes on this list. Once it’s all on there I want you to go down the list and add them all up. This is the amount of money going out every month.

Step 3 – Second-grade math formula “IN – OUT = SHOVEL”

Step three of the 4 non-scammy steps to getting out of debt is to do some second-grade math! Uh-oh! Don’t be scared, you are a grown-up so you can cheat and use a calculator. You’re going to take the number from the column with all the money going OUT and subtract it from the number at the bottom of the column with all the money coming IN. This new number is your working money, it’s the shovel you have to dig with. Some people might have a big number, most have a small number. If your number is right at zero then you are officially at “red line”. If it’s a negative number, you need to immediately go to the OUT column from step two and start cutting things. DO NOT use credit to make up the difference. Growing your debt WILL catch up to you and it is not sustainable. Do you really need the $40,000 pickup truck to get you to the grocery store and back? I didn’t think so. Sell it, get rid of the huge payment that comes with it, and buy something smaller and less costly. Seriously, if you complain about money being tight but have that kind of self-inflicted burden, then this isn’t going to work. OK, no more rant and back to business – highlight that number, we’re calling it your shovel. Now move on to step four.

Step 4 – Start digging!

Start digging! You take your shovel and start dumping every leftover scrap of money you have onto the first debt on your list. Dave Ramsey recommends going after the smallest to the biggest, and I agree. Seeing the small victories will encourage you to keep it up when you start tackling the big ones. Remember that you are still paying the minimum payments on the other debts, it’s the extra money (your shovel) that goes on top of your minimum payment for your smallest debt. I don’t care if it’s an extra $20, every dollar matters! The size of your shovel will determine how quickly you can get rid of your debts, so take a side job if you have to! Or have yard sale to raise some extra shovel money. A quick note: you will hear advice about going after the debts with the biggest interest rates, and that’s fine too. I want you to pick one of these strategies and just stick to it. The only people I advise should use this second method are the people with hardcore intrinsic motivation. You won’t see the little victories as quickly so your motivation might dwindle and we don’t want that. Either way, once you pay off the first debt, you get to put the amount you were paying on it toward the next debt. This build up starts what is called the snowball effect. Keep rolling the same amount of money you were used to spending on smaller payments onto the next biggest debt, and by the end you will be pouring money onto that last big, fat, slimy debt, and it’s going to melt away before your eyes! Keep doing that until you own your cars, don’t owe anything to student loans, and can kiss paying interest goodbye. Imagine the feeling you will have when you make that last payment. Dwell on that next time you’re eyeballing the Keurig 5.0 that you just “have to get”. My plan is to keep the snowball in place until I don’t have a mortgage payment either – I’m aggressive like that!

That’s it! No more steps! I truly want to encourage you to try it, you can do it. There is light at the end of the tunnel. It will take time, though, especially to get the snowball rolling. Getting rid of that first debt is a slow process sometimes, but it’s entirely worth it. Imagine what you could do, how many people you can bless, and the lifestyle you could have if you got to keep all of the money you make. For now, get to paying off your debt. This journey can take several years, but don’t let that get you down because your life will be so much better when you get out of debt and decide to stay out of it.

Your action item TODAY

Find your smallest debt – and do whatever you have to do to crush it! Deliberately set money aside to pay as much extra as you can to just crush it. If you get rid of it and you don’t feel like you’ve achieved something good, then I’ll return the money you spent to read this 😉 Just do it! And tell me about it on the Facebook page, I want to celebrate with you!

As we journey together, we will get into the various savings options you have once you have money to keep. We will also talk about setting reasonable goals for retirement and the ways you can invest to get to a point that you are financially secure. Lastly, we will get into the concepts of setting up passive income so that you can get closer to financial freedom while you sleep! But for now, start shoveling!

Let’s end average together!


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