A man in debt is so far a slave. ~ Ralph Waldo Emerson
This is part 2 of ”Dealing with th Green Monster – DEBT”. I mentioned earlier that out of my own experience, I’ve come to learn that personal finance is 20% head knowledge, and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.
Disclaimer: The contents of this article do not constitute professional advice. I suggest you find a qualified advisor. My only qualification is that I’ve made great strides in getting my finances under control, in starting an emergency fund, in paying all my bills on time, in not getting further into debt, and in eliminating my debt (I should be done by mid this year). These steps are based on my own personal experiences, and on the large number of books and websites I’ve read.
Tag along as we explore more Simple steps to Dealing with the Debt Monster.
7. Control spending.
At this point of your debt plan, you may find it hard to keep track of your spending, so ensure that you’re sticking to your spending plan. Here’s the key: first do the contingency fund deposit. Then do the debt payments. Then do your monthly bills. Then withdraw the variable amounts in cash, and put them into separate envelopes. Now, I know this is an old-school way, especially coming from a former bank official, but trust me; it works, as you don’t have to worry about overspending. When your envelope is empty, you can’t spend anymore. Continue to cut back on non-essential spending as much as you can at this point, so you’re able to stick within your spending plan.
8. Pay bills on time.
This may be a problem for a lot of people. It was a problem to me, I would buy time, procrastinate with my bills then I’d end up spending cash on stuff that were not essential. It’s important, if you want to get out of debt, to start paying all your bills on time. If you follow the payment plan outlined in Step 7. your bills should be paid before you get to any discretionary spending categories. At this point, you want to focus on getting those bills paid on time, and making it a habit. If you have trouble remembering, try one of these methods:
a) pay bills as soon as they come in —write out a check and prepare the envelope to be mailed the next day; or
b) set up a reminder in your calendar program to tell you when bills are due.
9. Start a snowball.
I first learned about the ‘Snowball’ terminology a couple years ago from Dave Ramsey –A personal finance expert. [Snowball – in this case we will use it as a verb meaning ‘to increase or accumulate at a rapid rate’]. Now that your finances are relatively under control, you can start a debt snowball. At this point, you should have the beginnings of a contingency fund, you should know how much you owe, you should have a temporary spending plan, and you should be paying bills on time and controlling your spending. Now you can focus on paying your debt. Here’s what to do: If you can find at least 5,000 shillings from your spending plan, use that to start your debt snowball. You may need to cut back on discretionary spending (as you did in Steps 2 and 3). Or, once your emergency fund is at 100,000 shillings, you can use the amount you were putting into that account for your debt snowball. If you have trouble finding at least 5000/- for a debt snowball, you will need to look at what other expenses you can cut back on. Take a look at your debt spreadsheet. First, order the debts from the smallest amount owed to the largest. Now, look at your smallest debt owed — you will start by paying the 5000/- or more (your debt snowball) plus the minimum monthly payment on that debt each month, until the debt is paid off. When the debt is paid off, you will take the amount you were paying on it and pay it to your next smallest debt, until it is paid off. Continue to pay off your debts, one at a time, until they are all paid off. Now you have a large sum you can put into growing your contingency fund, and funding your irregular expenses, and finally start investing.
10. Find larger cuts.
Once you’ve controlled your finances and started your debt snowball, there are ways to increase the snowball — and hence the speed with which you get out of debt. Look at your larger expenses — are there ways you can eliminate or cut back on them? In my case, I had the car sold, I moved to a smaller house, I sold some of my electronics that I did find not very essential to me, I canceled my cable contract with Multichoice. Ask yourself, Can I eliminate some services I’ve been using? Whatever cuts you make, apply that amount to your debt snowball — don’t spend it.
11. Grow your income.
Another great way to get out of debt faster is to make more money. Look at ways you can make money on the side — or ask for a raise or get a better job. Take 30 minutes to brainstorm. Are there ways you can start a small business online? Sell some of your assets off? Start freelancing on the side? Get a part-time job? This only has to be temporary, but the more money you make, the faster you’ll get out of debt. Be sure to apply your new income to your debt snowball.
12. Track your progress.
On your debt spreadsheet, be sure to update it every moment you pay your debt so that you can see your shrinking debt amount. You should be able to calculate how many months you have left before you’re completely out of debt. It may be a long ways off, but it’s within sight! Yes, you can do this.
Bonus!! – Celebrate!
It’s important to celebrate, not only when you’re out of debt, but along the way as you eliminate each debt. Have fun! Make this an adventure. It can be amazingly satisfying to stop spending and gain control of your finances instead. Find free entertainment, [Yes, I mean free entertainment] make it a challenge to be frugal and save money and find cheap used stuff. Pat yourself on the back along the way.
Remember: ‘Use debt as an opportunity for growth. If debt has beaten you down, why not learn from the experience? Change your measuring stick. Money is not the measure of all things. Remember, you live in a society, not an economy.’
I hope you find this article helpful. I’d love to hear from you, please share your experience of dealing with personal debt.