Living Behind The Curve

Every Friday is 11 Things day at Living Behind the Curve.

Making the decision to get out of debt is the first step on the road to financial freedom. Once you make that decision, however, where do you go from there? Inspired by this post at Zen Habits, here are my recommendations.

1. Create a realistic budget. Put as much money as you can towards paying down debt and having an emergency fund, but allow for a little bit of fun. Only the truly dedicated can live with no social/recreational activities for the amount of time it takes to become debt-free.

2. Take a hard look at what’s truly necessary, and be willing to make compromises. Cable TV, satellite radio, and lunches in the office cafeteria are not necessities. If you have a hard time letting go of these things, run your numbers through a debt calculator twice - once with your current budget, and once with the additional money that is currently paying for niceties. You’ll be amazed at how much of a difference those few extra dollars make.

3. Get creative. If there’s something you think you don’t have time to do more frugally, find a way around it. For example, cooking at home is much cheaper than eating out. If you don’t have time to cook, try investing in a slow cooker.

4. Be patient. Debt reduction is a long, slow process. Depending on the method you use, you may see no significant progress at first, but it will happen.

5. Have an emergency fund. It may seem counter-productive to direct money away from your debt reduction plan, but having money set aside will keep you from creating more debt if something happens. This is something I wish we had done better - we only had $1000 set aside in an emergency fund when Mer’s car went in for inspection a few months back, and ended up charging a fairly large chunk of change so that her car would pass inspection.

6. This should go without saying, but stop using your credit cards. It is impossible to pay off your debt if you keep generating more.

7. Do the math, and spend less than you take in. This goes hand in hand with budgeting, really. If your take-home pay is $2000/month, and your expenses are $2300/month, something has to change.

8. Use the layaway concept. Does anyone other than me remember layaway? When you put an item on layaway, you gave it to the counter clerk, and set up a payment plan with the store. Once you paid it off, they gave you the item - no credit involved. I furnished my first apartment this way. I don’t know if this is still in use anywhere (it seems to have been chased out by the instant gratification of credit cards), but you can do it yourself. If you really, really want that plasma TV, put aside a set amount every week for that purpose, and buy it in cash.

9. Recognize that it takes money to get out of debt. If housing+utilities+food is just barely equal to, or even more than you are bringing home, you need to find a source of money. Get a roommate, start selling your stuff, get a 2nd job - do whatever it takes to find extra cash, and apply that towards your debt.

10. Get complete commitment from all involved parties. If you are focused on becoming debt-free, but your spouse is a spendthrift, it will be difficult (if not impossible) to achieve your goals. Make sure that you are in it together, and truly make the commitment to the plan and each other.

11. Don’t remain stagnant - constantly reevaluate your plan. What makes financial sense now may not be the best thing a few months down the road. Interest rates may change, or you may get a raise. Set a firm goal, but be flexible in getting there.

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There’s no magic pill to get your debt under control, just like there’s no one-size-fits-all financial plan. I hope I’ve inspired you to look at your own plans for financial freedom. How are you taming the debt demons? Inspire others by leaving your methods in the comments.