People find debt to be more daunting than it actually is. There’s a good reason for that, they simply don’t have the discipline necessary to tackle it head on. I know this sounds overly simplified, but paying debt down isn’t nearly as hard you one would think. I’m not saying that it happens overnight, or without sacrifices, I’m only saying that it isn’t exactly calculating the quadratic equation. The process and the procedures are quite simple.
The first step to crushing your debt is to simply stop spending money! OK, not spending money altogether, since you do need to pay your bills, but stop spending more than you have. That means cutting up those credit cards, forget the reward points, if you are paying interest then reward points aren’t doing much for you. I’ve always said, as long as you spend less money than you make then you might still be broke, but you will never be in debt. This is actually a very easy lesson to live by.
OK, we just conquered the task of stabilizing our debt, now we have to figure out how to get rid of what’s already there. This is where a simple budget comes in. When I say simple I mean simple. You just take how much you make each month, subtract out the amount that you MUST pay on your bills, and then you have the portion left over for saving, investing, paying down debt, and entertainment. Now if you are really in the hole let’s just take entertainment funds out of the mix right now. Also, putting money into a low interest earning savings account isn’t going to do much for you. Investing in safe dividend paying stocks and funds can be wise so that you are at least somewhat liquid and outpacing inflation. But what we really need to get to is the paying down debt portion, which should pretty much be ALL of your disposable income left over.
If you are having a hard time forgoing that next concert, a new BMW, or a bar night out, just look at the bottom of your credit card statement where it explains how far making the minimum payment will get you. I love this disclosure, in fact if they had it there in my debt days I may not be writing this blog now.