How To Get Out Of Debt - Let's Dive In

How To Get Out Of Debt - Let's Dive In

"Debt is like a weight strapped to your ankles as you try to swim your way to the surface."

Debt in America

Debt is an interesting subject because almost everyone has it at some point and almost everyone views it differently.  Money in America by nature is created out of debt.  The central bank prints money and the United States government borrows that money at interest, an interest rate known as the federal funds rate.  With this money, major banks can now generate loans to consumers and businesses.  They have a mandatory reserve of 10% of what they loan that needs to be available at all times.  So in effect, the central bank can buy 1 million dollars of treasury bonds from the US government which injects 10 million dollars of potential consumer debt.  So now that you know how money works and where it is created, let’s talk about debt and your life.

How to Get out of Debt Forever

Debt is not evil, if you can use debt to build a business that generates income, that's great!  The debt we are talking about in this post is consumer debt, including credit card, student loan, and mortgage debt.  These debts are like a weight strapped to your ankles as you try to swim your way to the surface.  The lighter you can make the weight, the quicker you pay it down, the sooner you will be able to swim to the top and take a breathe.  

As mentioned in the path to financial freedom post, not having debt is a huge step towards being financially independent, but how do we get there?  And how should we tackle our debt?

When you have debt, it is easy to feel overwhelmed but these are changes you can make today to work towards being in less debt tomorrow.  If you can implement these changes it'll change your life.

  1. Learn about money - The first step to getting out of debt is to understand what it is and how to get out of it.  If you're reading this you're well on your way to achieving this first step.  Financial literacy is an integral part of your life because most things in life relate back to money in some way.  When you understand money, you will understand how to make more of it and most importantly learn the importance of getting out of debt.  Everyone's relationship with money is different, but extremely financially literate people don't have a lot of consumer debt.  Learn more, borrow less.
  2. Live simpler -  Living simple is the best way to get your game plan in order to tackle your debt.   Frugal February can be a great way to kick the year off right to pay down christmas bills or to stick to your new years resolution of managing your money better.  The important thing is to find comfort in living simple, even if just for a few days or a month.   When you live simple, you don't need as much, you spend less and you don't need to borrow money.
  3. Find extra streams of income - Finding ways to make a little extra money is a great way to pay down debt.  There are so many ways to make money now days and you can put every extra penny towards paying off your debt.  Drive for Uber or Lyft, create a blog, freelance, pick up side gigs, or rent out a portion of your house.  Today I took a few surveys on Survey Junky and earned a few bucks.  It wasn't much but if you're serious about earning extra streams of income, you do whatever it takes.  Find out what you're good at and find a way to get paid for it. You'll be paying down your debt in no time!
  4. Hyper Focus - Saving money is great, making more money is even better.  But that's only part of equation.  If you focus with extreme prejudice on paying off debt, you will be debt free, it's just a matter of time.  The longer debt lingers around the more likely it is you build comfort with it and it sticks around forever.  It takes extreme focus to get out debt and that's what's necessary to knock it out for good.   The order I take for paying down debt is to first fund a company 401k plan to match any employer matching - that's free money.  Then make sure you have an emergency fund build up so you don't get into more debt.  After that, it should be a full court press to get out of debt.  You'll be happy you did!
  5. Learn to say 'No' - Quit being comfortable with debt. There are many things in life we want, but very few things we actually need to survive.   It's easy to fall into the trap of consumerism and continuing to do what you already do.  That's because we are marketed to in order to build our desire to spend.  You have to learn to say NO.  Debt is easy to get into but it's exponentially harder to get out of. Cut yourself off from new debt and tackling your old debt becomes much more manageable.  If you're struggling to figure out how to stay out of debt in the future, focus on steps 1 and 2.  When we learn to live simple and keep more of our money, debt becomes much easier to avoid.

Paying off debt is an exciting journey.  With every dollar you gain a bit of freedom so enjoy the ride!  Achieving your goals is an unexplainable feeling, especially when it comes to paying off money you've borrowed.  In return, paying off debt will put money back into your pocket so you can invest in what matters. 

 

Freedom From A Mortgage On An Average Income

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