Build Your Assets, Lose Your Debt
Note: This lens is written by my fiancee.
So you have found yourself up to your eyeballs in debt. You are no longer thinking about what else you can buy - you are just worrying about how you are going to make your payments. Or maybe you can make the payments, but you just don't seem to be getting ahead.
I am by no means a financial expert, but this lens has some ideas on how to help get yourself out of debt and on the right track to a comfortable living, and hopefully a comfortable retirement.
Perhaps you will even acquire wealth!
Ridiculous Debt - How You Got There
It is pretty easy to fold to the pressures of society and consumerism. There are a ton of things out there we are told we want - and eventually we begin to believe that we really do want those things.
But how often do we pay for them with cash?
Heres how it happens: after you get your bonus, you decide you will reward yourself with a nice, big TV. Okay, so your bonus money goes towards that. But the retailer is offering some special payment plan, so you think... hey why not? I'll still keep the cash and let it build.
Unfortunately, you wind up spending it, and before you know it, you are wallowing in monthly payments. Rather than thinking about whether you have the money to pay for the whole item, you see if you can afford the payment.Does this scenario sound familiar to you? Do you truly want to have freedom in your financial life? Then keep reading. It won't be easy, but the end result will definitely be worth it.
It Takes Small Steps to Climb a Mountain
Use These Steps to Become Debt Free!
- Examine Your Expenses Closely
- Look at Your Income
- Establish a Disciplined - but realistic - Budget
- Stick to the Budget
- Build a Reserve
- Pay off Your Credit Cards
- Pay off Your Cars
- Pay off other Debts
- Pay off Your House
Cash Is King
Fetching RSS feed... please stand byStep One: Examine Your Expenses
What do you really need?
Then, take a really good look at your expenses. You are trying to determine if there is some room in your life to pay off more debt.
For example:
You are leasing a car, or you are paying a high payment on your current car.
Do you really need that exact car? Would you be willing to sell that car to buy (for cash) a cheaper one?
Let's say you currently have about a $700 payment on a $30,000 car. Is it absolutely necessary to have this car? Could you trade it in for either a less expensive one, say a used model of the same car, or just sell it and buy another for cash?
If so, you have just created up to $700 extra per month to pay down your debt.
Let's say you have $15,000 in credit card debt. (Thats almost as much as a car!) If your APR is 12.99%, and you are paying the minimum payment of $300, it will take you 16 years to pay off that debt. But if you pay that extra $700 (for a total of $1000/month) you will pay it off in about a year and a half!
Amazing!
See what a little bit of sacrifice can get you? Then, after the year and a half, you can save $700/month to pay cash for your next car - in about 3-5 years, which is still MUCH less time than it would have taken to pay off your credit card with you minimum payment.
Awesome Articles and Blogs
Some Help and Support in your Quest for Success
- One Million and Beyond Blog
- This blog is a terrific site for those of who are not only trying to get out of debt, but become wealthy. The writer offers some awesome insights.
- The Grumpstump
- This is loyalis (my fiancee's) blog. It has a lot of great information and reviews about more detailed and advanced finance issues. Great read.
Step Two: Look at Your Income
Is your income flexible?
If you work an hourly job, is there a way for you to work overtime? Will you have a bonus coming in? Are you due for a raise soon?
If none of those options are available, you can always ask yourself if there is any type of activity you do on the side that may also make money.
Do you have a hobby? Are you needing to clean out your house? If so, you may be able to sell some things to raise some capital.
Remember, this all goes towards helping yourself become free from the Debt Monster.
Step Three: The Dreaded Budget
How to Make a Realistic and Livable Budget to Freedom
Here are a couple of things I have found helpful to setting a budget:
The Budgeting Babe Blog
This blog is an AWESOME source for those of us who feel the pull of buying things we really shouldn't, or don't need. She also has some great instructions for how to get started on your budget.
Great Personal Finance Lenses
Some Other Great Resources
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How to Get a Raise
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Asking for a raise is one of the most stressful events in the workplace. This is a guide to help you know exactly how much you are worth, so you can ask for the raise you want and have the numbers to back you up!
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Dave Ramsey
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Dave Ramsey is a nationally syndicated radio show host, speaker, author, father, and husband. He teaches a fundamental concept of personal finance that he believes very strongly in : Staying Debt Free will lead to a more successful life. How to get t...
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Financial Success Headquarters
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Workin' Hard So that One Day I'll Hardly Be Workin'.... This group is dedicated to all of those lensmasters out there who have an interest in personal finance. I believe that everyone has the ability to lead a financial successful and secure l...
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TradeKing Review
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This is a complete TradeKing Review including features, accounts, and company history. TradeKing Broke Onto the Discount Broker scene in Late 2005 with something rave reviews and something that had never been seen before by a reliable company - Sub...
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Financial Gurus : The latest advice from Popular Finance Authors
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Don't end up putting all of your eggs in one basket. This is a collection of the latest finance advice from all of the best experts as well as the top financial members of the blogging community. Check them out, read up, and save a few bucks while in...
Build a Reserve
Let the Savings Begin
Perhaps the reason you are in so much debt is because unexpected things came along, and you didn't have enough savings to cover them.
Well, to help prevent this in the future, we are going to build a reserve for you.
You should really try to eventually have 3-6 months of living expenses readily available as this emergency reserve. Use it if you lose your job, become ill, have a car emergency, or some other completely unexpected expense.
Stick to the Budget
Not as Easy as it Sounds.
All you have to do is stick to it. Right?
Well, we are all human. You might slip up and buy something extra. Or you might have an unexpected expense come up. It is okay. Don't beat yourself up and become defeatist about it. Just pick yourself up off the ground, dust off your pants, and get back on that horse.
You're still probably better off than when you started, right?
Resources for your Journey
Women & Money: Owning the Power to Control Your Destiny
Amazon Price: $16.47 (as of 12/22/2009) 
Smart Women Finish Rich: 9 Steps to Achieving Financial Security and Funding Your Dreams (Revised Edition)
Amazon Price: $10.17 (as of 12/22/2009)
The Total Money Makeover: A Proven Plan for Financial Fitness
Amazon Price: $15.74 (as of 12/22/2009)
The Total Money Makeover Workbook
Amazon Price: $11.69 (as of 12/22/2009)
Pay Off Your Credit Cards
The Most Difficult - And Liberating Part
For this step, I am going to not go with Dave Ramsey's advice. I prefer to pick the one that has the highest APR (or interest rate). For the other cards, just make the minimum payment. For this card, throw as much of the extra money in your budget that you can. Before you know it, the credit card will be gone.
Once the first credit card is gone, pick the one with the next-highest APR. Do the same thing. You will notice that you have even more money to use towards this card because you have the amount you were paying as the minimum, in addition to what you were paying on the card before. See? You are beginning to pick up momentum.
By the time you reach your last card, you'll be sprinting to the finish line. Wohoo!
Pay Off your Cars
The Monster is Slowly Retreating
The next thing to tackle is your car. You can slow down the payment if you like. Now is a great time to maybe take half of what you were putting towards your credit cards into a emergency reserve, and putting the other half towards paying off your car.
You may be asking yourself - now why would I pay off my car? You may enjoy getting a new car every three to five years.
Well, okay. But remember, you are paying interest on the car. So, for every day that the car is not paid off, you will have to pay the financing company money above the purchase price to borrow that money. Over the life of the a $30,000 car, where you pay $597 a month for 60 months, you will have paid $35,854. That is $5,854 more dollars than the price! Imagine what else you could have bought with this money!
So hit the debt of the car - hard. Once the car is paid off, take the monthly payment (say it was the $597 we talked about) and put it towards a new car. If you saved $597 a month, you could have a brand new $30,000 car - for cash - in about FOUR years. That is a full year SOONER than it took you to pay off your old car.
Pay Off Other Debts
Who Else Do You Owe?
Who else do you owe money to?
Do you have student loans? Are your parents waiting for money from you? Is Vinnie down the street about to break your kneecaps?
Well, now is the time to make all these people happy - and finally get them off your back.
Do the same thing you did with your car and credit cards. You know the drill by now.
Pay Off Your House
Life Gets Simple
YOU HAVE NO DEBT
Your only expense right now is your home. Pretty much every penny that you earn can be dispensed however you desire.
Once your home is paid off, life gets REALLY simple. That vacation you've always wanted, well, you no longer have a mortgage to pay, so it takes almost no time to be able to afford it.
Some people prefer to not pay off their homes completely. I personally am one of those. I would rather save money and put it into investments and retirement accounts today and have it grow from compounding interest and earnings. However, having your house paid off provides an incredible form of security. If you are living in the home you want to always live in - why not pay it off? Then you really can do *almost* whatever you want with your money.
Just don't forget to plan for the future and your retirement!
Celebrate!
Wohoo!
Now Shout it Loud and Proud:
I'M DEBT FREEEEEEEEE!
Shout it out Loud and Proud
Just Sign It!
If you enjoyed this lens, please let me know by rating it or leaving a comment. Also, if I have left anything off, or if there is something you think I can add, please let me know!
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- totalhealth totalhealth Jan 27, 2009 @ 2:10 pm
- great lens on getting rid of debt. thanks
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- wombat666 wombat666 Nov 13, 2008 @ 6:26 pm
- Full of useful advice. Will try and follow it.
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- RecommendationsFromRebecca RecommendationsFromRebecca Oct 11, 2008 @ 4:24 pm
- Great advice! Dump debt! Use cash! Save! Invest! Amen!
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- ZachG ZachG Jun 24, 2008 @ 7:43 pm
- Awesome lens on getting rid of debt. Credit cards can be really, really nasty!
by Loyalis
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