Treating debt casually is the #1 dream-killing money mistake. The richest folks in America advise staying debt-free if you want to build enough wealth to enjoy your lifestyle. Here are the seven simple steps to get out of debt faster than you ever thought possible, so you can live the life of your dreams.
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Don’t Make This #1 Dream-killing Money Mistake…
If you want a prayer of living large and comfortably, you’ll want to slay this dream-killing, fire-breathing dragon as fast as possible.
You may be one of those people who thinks the rich always get richer while the poor get poorer. There’s a reason why that occurs. It’s because by and large, DEBT prevents you from building wealth. Debt is a ball and chain on you. It can make you feel like you’re in jail. With debt, you’re always trying to play catch-up. And you can’t win at that game.
The richest folks in America agree… 75% of the Forbes 500 say that getting out of debt is the #1 key to building wealth (Forbes magazine).
Don’t feel bad… most of us have been trapped by debt to one degree or another, including yours truly. I used to suck at money management. I struggled with debt, most of it stupid. [Correction: All of it stupid.] But I attacked it with a vengeance because I didn’t want to be defined by debt.
Do any of these statements sound familiar?
- “I feel like my life is hopelessly out of control. I have so much debt I have no idea how I’ll ever get my head above water.”
- “Not only did I rack up tens of thousands in student loans in college. I also took on a bunch of credit card debt. Now I don’t know what to do!”
- “We spent so much on a house that I can’t afford to quit my job, but I really want to be at home with my children.” Or this variation, “We’re so house-poor that we can’t leave the freaking house without feeling guilty over spending money on gas to go enjoy a free park.”
So, how do you get out of debt before the debt monster kills you with stress… or destroys your relationships? It’s simpler than you might think. Done in just seven simple steps. Though it does take a bit of focus and determination.
How to Get Out of Debt Fast! Step #1: Decide that the benefits outweigh the temporary sacrifice.
Imagine having no debt and actually having money left over at the end of every month, to invest in your future. Imagine as well that you can spend money on enjoyable experiences like travel, entertainment, or eating out without having to worry about it adding to a mountain of debt or being able to buy something just because you want it.
How much stress would that remove from your life? How much joy would it add back into your life? Stay focused on the end result… the freedom you’ll enjoy and the stress you’ll let go of. Imagine having no debt and actually having money left over at the end of every month, to invest in your future.
Imagine as well that you can spend money on enjoyable experiences like travel, entertainment, or eating out without having to worry about it adding to a mountain of debt or being able to buy something just because you want it.
How much stress would that remove from your life? How much joy would it add back into your life? Stay focused on the end result… the freedom you’ll enjoy and the stress you’ll let go of.
How to Get Out of Debt Fast! Step #2: Find out where you stand today.
You can’t start a race without knowing the starting point. List all your debts with total amount, minimum payment, and interest rate. Don’t treat your various debts like separate silos. They’re not.
Next, list all income from all sources. How much do you need for essentials like groceries, utilities, mortgage or rent, plus your minimum credit card payments? I suggest getting $1,000 into an emergency fund as soon as possible. This avoids new debt if you have an unexpected car or house repair, or medical bill.
Then prioritize your spending so you can find extra dollars to accelerate your debt repayment. What can you cut? How can you earn more? It’s your job to tell your money where to go. Don’t let it boss you around. (Or worse, don’t let your creditors boss you around.) Remember, money is a good servant but a horrible master.
How to Get Out of Debt Fast! Step #3: Hide your plastic. Or cut it up. Really.
Yep, I know it sounds cold-hearted. But think of it this way… How can you possibly get out of debt if you keep adding more debt to the pile?
You have to stop creating more debt.
Which means to put yourself on a spending freeze. And honestly, for most people that means ditching their credit cards, so they’re not tempted to add to their debt.
There are two ways to do this. One is more permanent than the other.
- Cut up your credit cards. Brutal, but effective.
- Freeze them into a block of ice. Keeps cards from being used for impulse spending. Makes it more painful to use the card than to skip the spend.
Don’t fall for the lie that you should keep a card around just in case… That outfit you’ve been eyeing online or (most) trips to Home Depot do not constitute an emergency. Nor does the furniture you’ve been dreaming of that just went on sale. These are not real emergencies and will only saddle you with more debt.
Go cut up or freeze your credit cards right now. To use a famous phrase, “Just do it.” (I’ll be here when you get back.) It’s hard, to be sure. I’ve done it. But the payback is so worth it.
If you’d never had a credit card, you wouldn’t have a debt problem right now, would you? Credit card companies’ goal is to make it as easy as possible for you to spend money. Remember, the credit card companies get a fee every time you spend. They collect interest every month you don’t pay off your entire balance. Plus a hefty late fee every time you’re a day late. So their goals are not exactly aligned with yours.
How to Get Out of Debt Fast! Step #4: Plan your repayment schedule.
Financial experts use the term debt snowballing when you fast-track your debt repayments. There are two basic ways to do this:
- Pay your debts off rapidly from the smallest debt amount to the largest amount, no matter the interest rate. There are major psychological benefits to this as you knock out lower balance debts and see success quickly.
- Pay your highest-interest debts off first. There’s a monetary benefit to doing this, as you pay less in interest during your debt repayment.
Or you could do kind of a blend. Pay off your smallest one or two debts. Then when you get a bit of success, tackle the highest interest one next.
There are other variations on this theme. When we tackled our mountain of debt ten years ago, we had a loan for a roof replacement. It was one of those “sucker no interest for the first year” deals where if it wasn’t paid off completely by the one-year mark, a very high interest rate (around 30%) would kick in and apply from the date of the inception of the loan. Needless to say, that was the first debt we paid off. Otherwise the interest would’ve been prohibitive.
It doesn’t matter which debt snowball plan you choose. The one you’ll actually implement is the right one for you! Just get out of debt, so you have a bright future.
How to Get Out of Debt Fast! Step #5: Pay your debt down as fast as humanly possible.
Pay the minimum on everything except your highest priority debt. Once that highest-priority debt is paid off, immediately apply the total you were paying towards the first debt and add it to your minimum payment on your second-priority debt. Rinse and repeat till all your debts are gone.
Sample Get Out of Debt Plan
Here’s how it would work if you’re tackling the low-amount debts first. Hypothetically, let’s say you have these debts:
Note: Be sure to pay the minimum on all debts every month. Never miss a payment. Pay on time or early. Don’t skip one payment to make a bigger payment on another debt. Missing payments adds late fees to your debt load. And it wrecks your credit rating. (For more on how to improve bad credit, check out this article.)
Throw any extra money to the lowest debt amount as fast as you can.
Assuming you cut spending and are able to pick up extra cash through a side hustle, side job, or overtime each month, let’s assume you have an extra $500 per month (in addition to your minimums) to get out of debt. That means you can have Target paid off this month. Along with an extra $200 to pay down your medical bill. The rest of that medical bill can be paid off in the second month. Boom! Two debts are now paid in full.
That gives you $70 from those two minimum payments plus $500 of extra money to start making a dent in your Visa. Combined with your Visa minimum payment, you’re now paying off $645 per month on the Visa. Keep at it, because in just another five months you’ll have Visa paid off. Meaning that in seven months you’ve wiped out three debts for a total of $4,000. Pat yourself on the back. Only two loans to go.
With the Visa gone, you now have $895 per month to apply to your car loan. Eleven more months, and that one will be knocked off. If you get a raise in the meantime or receive any gift money, put it to work for your future by hurling it at your debt.
Finally, you’ve reached the end of the line – your student loan. Now you can use that $895 you’ve been throwing at your car loan, plus the $100 minimum payment. That’s nearly $1,000 per month.
Meanwhile you’ve been paying it down during the past 18 months. About 13 more months and you’ll be completely out of debt. So in just 31 months – about 2½ years – you paid off a whopping $26,000.
How to Get Out of Debt Fast! Step #6: Dangle a carrot.
It can helpful to name something you really want, to help keep you motivated. With the promise that when you get debt free (plus enough extra to avoid more debt) you get to go out and buy this celebration item or event.
Again, don’t take on debt for this. That’d be kind of self-defeating. We named something we really wanted, and the promise of getting it was our carrot. It motivated us to keep on keeping on.
How to Get Out of Debt Fast! Step #7: Celebrate your success – and your bright future.
Your exact numbers and time frame may be higher or lower, depending on your income, expenses, beginning debt load, and personal discipline, but look what you accomplished! You got out of debt, got rid of that monster riding you all the time, gained $1,000 per month in new financial freedom, and surely improved your credit score and said good riddance to a lot of stress.
If you want to get debt free in less time, the obvious solution is to somehow (by legal means) come up with more money to throw at the problem. You can also find more corners to cut. But it may be easier to earn more money than it is to cut corners. After all, there’s only so far you can cut.
Many, perhaps most, people can work their way out of debt (minus mortgage) in 1½ to 2 years with diligent effort. Which is a short time compared to the rest of your life. That’s not so bad, when taken against the backdrop of the time it took you to amass the debt – which was probably also a few years.
One of my favorite books is called, “It Takes So Little to Be Above Average.” It’s so true. You may be content to maintain the status quo. But it doesn’t take that much to beat the average.
Your determination and your plan are worth their weight in gold. You’ll learn from the journey. The key is to get started, so you can live the rest of your life with the freedom you yearn for. All you have to do is set your plan, stop spending money on unnecessary “junk,” make debt reduction your highest priority, and stay focused on your goal.
Millions of people have used this exact strategy to get out of debt so they could start living their dream life. It’ll work for you too. We’d love to hear about your journey.