The key to getting and staying out of debt is being able to
save enough money to cover any unforeseen expenses you
come across. If you can put the following plan into practice,
then you should be able to get out of debt. Getting out of debt
takes a long time, there is no quick fix. However the quicker
you get started the quicker you can be out of debt.
A no debt budget
Let's look at a way for you to get out of debt while breaking
the current routine. By using a ING checking account as your
spend money account. You can get a Debit/MasterCard. This
card will work as a regular debit card as long as your balance
is above zero, but turns into a credit card once you are below
zero. There is no fee for going below zero, so this is a great
tool for budgeting. Of course the idea is to stay above zero,
but if you should fall below zero, there is no penalty; this is
much better than an overdraft fee. This should become the
only card that you carry with you. You need to stop using all
other credit cards as soon as possible. This card is a good way
to wean your self off of the other cards. When you apply online
for your ING debit card, try to set your credit limit to handle
emergency expenses such as a car repair. I would suggest at
least half of your monthly salary as a credit limit. If you have
no credit or bad credit ING will only give you a $25 limit. You
may be able to get it raised by giving them a call.
What I would like for you to do is figure out all your weekly
expenses such as; eating out, gas money, kids allowances,
groceries, and anything you spend money for weekly (the
spreadsheet on this website will help you with that.) If you
can afford to, even add a little extra to this amount.
Now when you get your paycheck, put this amount into your
ING spending account ether by Direct Deposit or by ING
automatic transfers. Now you need to keep your spending
under control. So I want you to set a budget for eating out,
and also for any other miscellaneous things such as shopping
for clothing or your daily coffee. Go to an ATM machine and
use the debit card to withdraw enough cash for one week of
miscellaneous spend money. For all other planned purchases,
use the debit card, such as gas money, and groceries.
By using cash for your miscellaneous spend items you will be
more conscious of how much money you are spending. If you
spend too much you will know that you have to wait until the
following week before you can spend more money. This is a
good way to put on the brakes when you spend too much
money. Another trick I like to use is to take a portion of your
cash allowance, and fold it up and separate it from the rest of
your cash. That way when you spend all of your cash, you will
know that you only have what is left in your stash for the rest
of the week.
Understand that it is more important for you to save some
money than it is to pay off your debt. However, you must
also at the same time not acquire any new debt. If you don't
start saving, you will never be out of debt. Your goal should be
to save a full months salary in savings, but at minimum you
should at least have a half months salary in savings while you
are working to pay down your debt, once your reach that goal,
then you can apply anything above that too your debt so you
can pay it off as fast as possible. I know from experience that
it is very difficult to get there. However, as you are doing this,
you should in the long run pull yourself out of debt.
If you should have an emergency expense, use this card to
pay for it. Then take money from your savings and pay it back.
If you don't have enough to pay it back you will need to cut
back on your miscellaneous spending until you can stay above
zero in your account. Remember that this account will have
ether weekly or biweekly deposits made to it depending on
how you get paid. This means even if you use the credit on
this card, the monthly interest will be less than that of a
standard credit card.
Anytime you have to use your savings money, then you need
to first apply your extra cash flow to restoring your one
months salary in savings. Once your reach your goal apply all
extra cash flow to your debt.
Once your debt is paid off, anything above one month's salary
in savings should be invested to make higher interest.
Consolidating Your Debt
I'm going to try to keep this simple. If you are making
payments on more than one debt payment, then you need to
think about consolidating your debt. This is something you
need to constantly keep an eye on. Making debt payments to
multiple sources is a huge drain to your income that will only
put you further into debt. It is a trap that there is no escape
from. If your debt is to the point where you can not save, or
close to that point then you should consolidate your debt to
one payment. If you are past the point of being able to
consolidate, then you should consider getting information on a
debt settlement plan.
If you decide to consolidate then you will need to change your
current spending habits or a couple of years down the road
you will be in a worse situation. If you can follow the plan
above, and stick to your budget, then you will be able to get
out of debt.
When consolidating your debt, you need to include everything;
car payments, credit cards, loans and any other debt
payments. If you own a house, you may want to consider
refinancing your house if the debt is really high. If not, you
may need to consider a home equity loan or a personal loan. If
you just have a small amount of credit card debt on one or two
cards, then read my chapter on credit card debt.
One thing to keep in mind is that you want to get a loan that
will lower your monthly payment, but also take the shortest
loan term you can afford to take. If you stretch things out too
far you could easily wined up in a worse situation in the future.
The idea here is to wipe out the debt as fast as possible, but
also raise your monthly income so you will be able to save
some money for emergencies. If you don't learn to save
money, it is only a matter of time before you will be in
bankruptcy. You need to have money set aside for unforeseen
Credit cards are the worst invention ever made. You need to
get to a point where you will never use a credit card again.
They are very convenient, but a debit card will serve the same
purpose if you learn to take advantage of them.
Getting and Staying
Out of Debt