As I mentioned yesterday, westerners generally have too much stuff. That is the result of an extravagant lifestyle that television and popular media promote. The idea is that we shouldn’t be satisfied with what we have. That’s the whole underlying motivation behind much of the advertising industry.
Credit cards are a big source of woe for many people. They are a major cause for bankruptcies in America and they are really a symptom of a much greater issue. The issue is dissatisfaction.
In the last 17 months, I have paid off over $8,500 in debts. Through listening to Dave Ramsey and reading his book The Total Money Makeover and reading Trent’s blog The Simple Dollar, I have come to realize why credit cards are a bad deal.
Credit cards a symptom of dissatisfaction with what we currently have. Having dreams and goals is good. Losing sight of the long term in exchange for the short term is bad. Very bad. It says that we are impatient. It says that we don’t have the strength of character to wait for a little while longer until we have saved up the money for whatever the purchase is. It says that we have low levels of self-control.
Getting out of debt (or even climbing out of debt) is probably the most obvious stress-reduction activity that most people can do immediately.
So how do I start to get out of debt?
- Reduce your lifestyle
The first step to getting out of debt is to accept where you currently are. Stop incurring further debt. Be satisfied with your current position, and develop patience by waiting to buy something until you can truly afford it. Pay yourself first. Food, shelter, lights, and transportation come first. Make every effort to reduce all of these costs, but vow never again to have credit cards current, but electricity shut off. I had that happen once. Never again.
- Get current on all debts
Make minimum payments on everything. Get caught. Stop receiving pink bills from the electric company and “FINAL NOTICE” envelopes from the water company.
- Save like crazy
Every sound financial adviser recommends having n emergency fund of 3-6 months in place. That’s great hypothetically, but how do we do that if we have more money going out when we have coming in? The first step to getting out of debt (after the psychological shift) needs to be to add a little safety net. Dave calls this the baby emergency fund. Find $1,000 FAST and put it into savings somewhere. It needs to be somewhere that is readily accessible, but not overdraft protection for your checking account. Where can we find this money? If you sold some stuff yesterday, you found some of it. Cut corners everywhere you can. Eat out less (or none). Eliminate junk food. Drink water. Sell more stuff. Make it a challenge to see if you can save $1,000 in two months. What about a month?
- Pay off debts
After you have your baby emergency fund, everything else goes toward the debt snowball. Make minimum payments on everything, and shovel all remaining money to the smallest debt. Eliminate the smallest debt first and then move on to the next smallest. When I first started, I was able to get three credit cards out of the way within two months. What a huge psychological boost that was! It told me that it was working and that I wasn’t going crazy. Now, I am down to two credit cards, and my credit rating has jumped 100 points since that time and nearly 200 points in 23 months.
- Don’t buy more crap
When we begin to see victory, it is so tempting to go back to where we used to be. I still have to fight the urge to eat out almost every day. I win most of the time. I want to look at DVDs when I go to the electronic stores, but I know it won’t help me. So I look, but don’t buy. Then when I do end up buying something, it is premeditated rather than impulsive. That makes a huge difference, and it helps me to be in greater control of my spending.
Every good thing takes time to happen, but the psychological freedom that comes on the day you realize that the phone rings much less often because the creditors NEVER call is beautiful. Close your eyes and imagine that day. Now make it happen within three months.