Tag Archives: snowball

Get out of Debt

Get out of Debt
You may be wondering how this applies to being prepared? When you are obligated to a payment you MUST work to make that payment. The more payments you have the less freedom you have to choose what you want to do with your life. Debt is bondage. Control your debt and you control your life.
Where do I start?
Start by not buying anything else on credit cards. Start today. Do not wait until tomorrow.
“BUT I get …(mileage, points, rewards, etc.) when I use my card”. Are those points really more important than your financial security? Start using a debit card, check, or good old fashioned cash. If you want to change your life you must change your behavior. We don’t loose weight by not eating. We loose weight weight by not eating as much. Just don’t spend as much.
Once you quit buying things with money you don’t have you can go to the next thing.
Start the “Debt Snowball”- pioneered by Dave Ramsey
Save $1000 dollars in a savings account or in cash as an EMERGENCY. This is not to be used to pay bills or anything else. An EMERGENCY only.
But you may say, ‘this is not getting me out of debt?”. You are right. You are doing this for a just in case. Let’s say all is going well. You are paying your bills and making progress. Then, WHAM, the hot water heater goes out. What do you do? You replace the hot water heater with your emergency fund. Remember, we are not using credit cards ever again. Then start back up again on replacing your emergency fund and continue on your way.
Here is how it works. Create a Budget.
List your Income.
List your Expenses- Start with hard costs (i.e. fixed payments like mortgage, credit cards, utilities, loans) then go to variable costs (food, cable, dance, baseball, eating out)… Yes cable is a variable cost.
How much is left over?
Cut variable expense- You can do it. Remember the life you want later is better than the life you have now.
How much is left over?
Cut variable expenses
How much is left over?
Apply this to your lowest payment
You list all of your debts from smallest payment to largest. Let’s say for example you have a $100, $200, $300 payments. You owe $1000, $2000, $3000 respectively.
Once you are applying your money to the lowest payment, continue until paid off. It will look something like this. Simplified for context. You determine after all your expenses are taken out you have $100 extra a month. To oversimplify the example, we will assume no principal reduction on monthly payments.
Month 1-$200- $100 for the bill plus the extra $100 you have left over at the end of the month
Month 2-$200
Month 3-$200
Month 4-$200
Month 5-$200 (total paid $1000) you now have Bill A paid off. YEAH
Month 6-$400 you take the $200 you were spending on Bill A and apply it to the Bill B payment
Months 7-10- $1600, you now have paid off Bill B
Month 11- $600- Bill A payment + Bill B payment + Bill C payment
Months 12-17- $2400- you are now DEBT FREE
Realize that with an extra $100 a month you paid off all of your debt in only 17 months. That’s SIX THOUSAND DOLLARS.
This is the first step in your ability to free yourself from the bondage of debt. Do not worry about anything else. If you do nothing else in becoming prepared you will have beat 90% of the people out there.