A simple walk-through of how you can get out of consumer debt and begin living life the way that God had intended!
In today's world, we are constantly fed the notion that in order to have things, we need to finance those things. It has become a rarity to pay cash when we buy something, especially for large purchases. We are confronted at the store checkout register by an associate who is only following orders by making an offer to discount our purchases in exchange for signing up for the store's credit card. We get offers in the mail to transfer our balances to a credit card offering a short-term 0% interest rate or a lower interest rate than the card that we are already using. The problem is that we transfer the balance to the lower-rate card and still have access to the revolving credit line on the other credit card (way too tempting, right?).
Gas cards. Furniture store loans. Store credit cards. Auto loans. MasterCard. Visa. Discover. Consumer debt is alive and well, but what is it really doing to your future?
Making payments is as American as apple pie, but how different would your life be if you had no payments? Or - if you want to include your house payment into the mix, how different would your life be if you had no payments except for your home? Would you contribute more to your retirement fund to adequately support your golden years? Would you accelerate paying down your home mortgage? Would you invest more? Would you save more? Would you pay to put your kids through college so they didn't have to graduate with a degree in one hand and a dozen years worth of student loan payments in the other?
Imagine the answers to all of these what-if questions. Go ahead. Take it all in, because these are all very real possibilities of what you can do with your individual financial resources once you have freed them from the bondage of debt slavery. The beauty of it is that it doesn't matter how relatively rich or poor you may think you are (I say relatively because we always seem to compare ourselves, don't we?). The simple truth is that removing payments entirely from your budget is like getting a raise, no matter what income level you may currently be working within.
That sounds great, but how do you do it?
Ah yes, the million dollar question (perhaps literally). I won't say that it's easy, because it's not. I won't say that it's for everyone, because truly, you need to have a certain disposition towards wealth and a natural quality of mind and character to be able to identify what hinders one's ability to be wealthy. We'll assume for the purposes of this article that you do wish to attain a reasonable level of wealth or at least possess enough to be able to live comfortably and worry-free as far as personal finances are concerned. We'll also assume that you are willing to work harder and smarter than the average person who is completely fine with being shackled in the chains of debt slavery. With these two general assumptions out of the way, we can get to the real meat of this tasty morsel.
Budgeting. The key to it all. Where all things financial start and where all things financial end. This is your greatest weapon to tell your money what to do and where to go. If you use it wisely, you will find that it will serve you well. If you don't like doing a budget, that's okay. You can learn how to make budgeting a less unpleasant ordeal. If you are vehemently against doing a budget altogether and won't even let me talk you into it, then you might as well save some time and stop reading this article right now. We really have no more to discuss here if you have a closed mind towards doing a budget.
Still here? That's great! That means that you are either kicking and screaming about doing a budget, but you're still willing to give it a try - or you actually enjoy this kind of stuff and you're what others may think of as a really sick individual. Don't worry, you're in good company - I love doing a budget. I love to construct my financial forecast for the month, and yes, I even love forecasting my finances for the entire year! We can't always determine what exactly we will be receiving as income (due to layoffs, company closings, etc.) - but we can plan for the future with what we know to be true now and make changes as is appropriate down the road.
Budgeting isn't that difficult, either. It can be as simple as a piece of paper, folded in half, with two columns: planning and spent. At the top of the paper, you write down your expected income for the upcoming month. On the left side of the folded paper, you write in your planned expenses based on staying within the total amount of your anticipated income for the month. On the right side of the folded paper, you write in what you have actually spent. Some simple subtraction and a good eraser (assuming that you started this task using a pencil) will allow you to make changes as needed to bring the amount of income minus the amount of outgo to total zero. That is what is known as zero-based budgeting. The goal in this exercise is to tell each and every dollar earned for the month what to do before the month begins. You make changes as needed so that your income minus your outgo always equals zero. You've got a couple hundred dollars leftover at the end of the month, you say? Well, aren't you lucky? Guess what that means? You still need to account for those dollars, so add a line under the planning side of your folded paper for savings - then stick that $200.00 in your savings account for a rainy day. The income minus the outgo will then total zero, and that's exactly what you want for this exercise and for any other budgets that you complete.
Now, that is a very rudimentary example of how to do a budget. You can make it as simple as you want or you can make it as complex as you want. I've seen people use spreadsheets that link to other spreadsheets with integrated formulas that automatically calculate the approximate number of months before they pay off all of their consumer debt. The point is that you are making a plan for your money, regardless of how you execute those plans. The budget is key because it not only allows you to see where your money is going, but it also allows you to plan some of your resources to be spent on tackling the task of paying off your consumer debt.
Here's where we grab another sheet of paper and fold it in half. You may need to sharpen your pencil at this point before we continue. Go ahead, I'll wait.
Now, what we want to do with this piece of paper is list debts in order of smallest balance to largest balance on the left side of the folded paper. List all of your debts except for your home mortgage. Remember, this article is about consumer debt (car loans, credit cards, and the like). On the right side of your folded paper, write down the total remaining balance of each debt. Now, let's start with the debt listed at the top of the paper. Regardless of the interest rate, this debt is going to be your first target. Do you have your weapon ready? Pull out that budget sword, because it is time to slay your first debt dragon! Your budget will already have an entry for this debt, and it will most likely be an amount that just meets or is slightly above a minimum payment. However you can do it, your job now is to focus with intensity every dollar that is not already earmarked for something else towards paying off this debt as quickly as possible. Once you have slayed that debt dragon, your budget sword gets upgraded to a stronger and sharper metal edge. Now, you take the money that you have been budgeting for that first debt that is now paid off and add it to the amount that you already have budgeted towards the second debt on your list. Your budget sword is stronger, and your foe is getting smaller and weaker with each and every payment.
Now it's time to rinse and repeat. Do the same thing for each and every debt on your list, adding the resources from previously paid-off debts to the current debt, all of the way down to the last and largest balance. Don't lose your focus and intensity. Take the adrenaline rush from your previous wins and apply it towards the remainder of those debts all of the way through to the final battle. Once you defeat that last debt dragon, you are officially a debt slayer!
It may take a long time, but eventually you will have knocked each and every debt off of your list and out of your life. Now the next question is: what are you going to do with all of this extra money that was once earmarked to go towards payments?