Financial Preparedness – How to Get Out of Debt

Getting Out of Debt IS prepping.

It is, and it’s an important part of prepping that people love to ignore.  Rather than explain this point again I will refer you to my past articles on this subject so we can move on to how a person or family can go about attacking their debt.

Financial Preparedness – The Importance of a Monthly Budget

Getting Out of Debt IS Prepping

The Seeds of Financial Preparedness

Photo by Kamyar Adl

In financial guru Dave Ramsey‘s popular Financial Peace program, he also uses the time proven method of paying off debt called a “Debt Snowball.”  If you are not familiar with that term, what it entails is taking your lowest owed balance and focusing all of your money efforts on that bill first paying it off as quickly as possible.  Then taking the exact amount you were paying on that bill plus the minimum payment of the next bill and paying that one off as quickly as possible – repeat with the next lowest balance and then the next, until you are out of debt.  The amount you can pay on your bills grows as you pay each one off, in a sense you are snowballing the payments, by the time you reach your bigger bills, the amount you can pay on them will be much bigger than if you were just paying a little extra each month.  I was once in a position where I thought paying off our debt was impossible because we were so strapped for cash, but I focused my efforts on a little department store card and paid it off, since I thought I had nothing to lose instead of spending that money on something else I jumped on the snowball program and our debt slowly starting dropping.  All I had to do was give it a try, completely stop using all of my other other cards (it’s best to cut them up, it really is), stick to our budget, and with each bill we paid off it became easier and we became more motivated.

Now, there are some people who love to point out that mathematically it would be more effective to pay off your highest interest rate balance first (banks and credit unions often issue this advice), but, a Debt Snowball is not really about math it’s about behavior modification.  It’s about giving your significant others and yourself some confidence and momentum.  This is why, over time, the Debt Snowball method of debt payment has proven MORE effective and longer lasting than attacking your highest interest rate first.

So if you have gotten your significant other on board with a monthly budget and you have *completely* stopped acquiring all other debt (no furniture, tires or storage containers on credit either), then you are ready for this next step.  After you have built up a small emergency fund ($1500 is a good goal), you will stop putting money into savings.  Stop investing, put your 401k contributions on hold, and pay the minimum on all of your bills except the one that has the lowest balance.  Throw all of that extra money, plus the minimum payment, at that bill.  Throw everything you can at it.  Dave Ramsey likes to say during this time “…you shouldn’t see the inside of a restaurant unless you are working there.”  Have a yard sale, sell anything and everything you can and throw it at that bill.  Once you get it paid off, don’t take a break, now is not the time to reward yourself – attack the next highest balance with everything you paid on the last bill PLUS the minimum payment you have been paying this next bill.  Repeat.  Until all of your debt is paid off, eventually you will pay off your mortgage but for now focus on all of your other debt first.  There is an excellent set of online Debt Snowball tools that you can use for free on Dave Ramsey’s website just click here.

When you are debt free you are less vulnerable, more independent, more self-reliant, and you are no longer a slave to your lenders or your credit score.  This enables you to do other things with your money that you have always wanted to do, like make it grow.  These tools are time proven and, even with a modest income, you will surprise yourself at how quickly you can pay off your debt using this method.  You just have to make it a priority in your life, just as important as putting up food or prepping gear and get it done.  If you are making or have made the commitment to pay off your debt – say so in the comments below!  Encourage others and let others encourage you, being the only one of your friends to be paying off their debt can be a lonely adventure – since it usually mean you are staying home saving money while they go out.  We can help each other out just knowing there are others out there.

If you are already in a good place debt wise and would like find some ways to increase your wealth and find some more money for prepping – stay tuned!  This series of articles will cover those subjects as well as many others.  Needless to say – there is nothing like paying off debt to free up money for your emergency preparedness plans.  In fact, my next financial article I will touch on how to free up some money in your budget!

Dave Ramsey’s Financial Peace Program:

http://www.daveramsey.com/new/baby-steps/

I love Dave Ramsey’s program to financial peace.  After seeing the ins and outs of the financial industry for 7 years, I can vouch for its effectiveness – and for Dave’s wisdom.  It really does work, and in my opinion is the best program out there, and neither APN nor myself receives any compensation to say that.  While not a prepper himself, Dave’s program is right in line with the principles and values of preparedness.

This series of articles are presented from my point of view with seven years of financial industry experience.  They are, in a sense, my opinion and should not be viewed as legal or financial advice.  My solutions do not fit every situation, so I highly recommend anyone facing money troubles should seek a qualified financial advisor or counselor before acting.  Again, Dave Ramsey’s team of financial coaches is the only place I personally would seek out such help for myself.

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