No one who owes money can really be her own woman. If you are in debt, you are working to rake in the big bucks but have no say over how it’s spent. People often describe debt as “crushing.” It’s a good word for it. Debt can crush your autonomy, your potential and your dreams. If your goal is self-reliance, you need to get out of debt.
Here is a five-step plan to get out of debt and build a nest egg.
1. Stop Digging The Hole. It’s like they always say. If you find yourself in a hole, stop digging. And if you’re in debt, stop using your credit cards. I know it hurts. But you need to stop. You’ll never be able to climb out the the hole until you stop digging yourself deeper and deeper into it.
2. Sock Away A Grand. Give yourself the gift of a little nest egg. $1,000 is usually enough. This money is for emergencies. Real emergencies. Car repairs, medical bills, broken windows. That kind of thing. This money is not to be used when they come out with a new iPhone and you just have to have it. It’s for REAL emergencies. Use every gimmick you can think of to save this money. Collect all your change at the end of the week and deposit it in the bank. Ask for money for your birthday or Christmas and deposit it in the bank. Sell your old books and DVD’s or hold a rummage sale and deposit your proceeds in the bank. Did your heating bill go down when the warm weather came? Deposit the monthly difference in the bank.
3. Don’t let the credit card companies get more out of you than you already owe. In the meantime, pay the minimum amount due of all of your credit cards on time. By no means do you want to incur another $35 or $50 late fee. Don’t let ’em have it!
4. Baby steps. Make a list of all your outstanding credit card bills, from the lowest to the highest balance. While you are paying the minimum balance on the rest of your cards, go to war on the card with the smallest balance. Take every extra dollar you can find and use it to pay down that debt. And then it will be gone. Doesn’t that feel great? To congratulate yourself for eliminating one card balance, you should set about eliminating another one. Then you can turn your attention to the next card on the list. Remember the minimum amount you had to pay every month on that first card, the one that’s been paid off? Take it and add it to the minimum amount you are already paying on the second card. That’s right. Double the minimum. And then take every other dollar you can find and use it to pay down this second card. Keep going in this way until all of your credit cards are paid off.
5. Turn Your Debt Payments Into Savings. When your credit cards are paid off, take the money that you were using to cover your minimum credit card payments and save it. Build up six months’ worth of expenses in your rainy day fund.
I am not minimizing the hard work and discipline it takes to do this. Sometimes, people build up a lot of credit card debt by being frivolous. But more often, it’s just because they are unprepared for unexpected expenses. They need a root canal, new tires, or a new furnace. They don’t have the money, so they charge it.
Then, when they are trying to pay the debt off, the emergencies keep happening. The kids outgrow their shoes, the dog needs to go to the vet, or the refrigerator goes on the blink. Well, that’s what the rainy day fund is for. But it sure is hard to add to the rainy day fund, keep up with the minimum payments on all your cards, go to war on the first card on your list, and deal with emergencies, all at the same time.
It may require hard and sometimes painful choices. Stingy Christmases. Family stay-cations. No new iPhones even though everyone else has one. Not fun. Or easy.
But the long term gain is worth the near term pain. Because once you have paid off all of your credit card debt, you will have taken an enormous step toward self-reliance. Owning your money, instead of owing money, is one of those things that make you your own woman.