Happy Friday everyone!
Today’s post gives you a step-by-step checklist to work your way to debt freedom! Each one of these items could be elaborated on in a separate post, so expect to see something in the future for each one. I did however feel it was important to summarize each bullet point for a little explanation. I hope that for anyone just starting to think about their financial situations a little more seriously, and specifically, how debt is affecting it, that this checklist will give you something solid to follow to eventually reach your debt free goals. Click here to download your printable checklist! (If you have MS Excel 97-2003 click here.)
Feel free to share your thoughts below! Have a great debt free weekend! 😀
Setup a special meeting with your spouse
In this meeting your number one goal is to discuss each others financial objectives. Talk about where you want to be and what’s keeping you from getting there. Since you’re in debt that would be a great place to start because your debt is keeping you from accomplishing a lot, whether you realize it or not. How much could you save without payments? Could you eventually quit your job to start your dream career? If you had no debt how much faster could you save for retirement? etc. etc. etc.
Make the decision to become debt free (and stick to it)
Believe it or not, this isn’t as easy as it sounds. Saying you want to become debt free and actually taking the steps necessary to make it happen are two different things. This decision should be taken seriously and so should your commitment to see it through. This is not a New Years Resolution, it is your life and your future! You could also pledge your commitment on my 12 Steps to Debt Freedom post.
Evaluate your current financial situation
This is actually something you should already know but chances are, if you’re in debt, you’ve ignored the details for far too long. Write down how much “net household income” you are currently bringing in. Create a monthly bill list and figure out how much you have to make each and every month to cover your current obligations. This will tell you how much disposable income you have at the end of the month, if any. If you have no extra money, your goal is to cut any expenses that are not necessity as well as find ways to lower expenses that can be reduced. (If you have cable with ALL the channels, maybe it’s time you cut back to at least basic cable. etc.)
Start using a budget
A budget is by far your best financial tracking tool as you are working to become debt free. Telling every penny where it will be spent is the only way you’ll keep yourself 100% accountable. It gives you a crystal clear snapshot of exactly what’s going on each and every month. The more you do it the better you’ll become at managing your money. For those of you that are interested I have created EOD Deluxe Budget 2.0, a comprehensive excel spreadsheet that allows you to track multiple aspects of your money, and EOD Basic 3.0, a step-by-step budget created with newbies in mind, but good enough for anyone.
Save at least $1,000 for your Emergency Fund
Before you can effectively eliminate your debt you need to have something in place that will allow you to cover any small emergencies that come up in the process. Without it you’ll just be defeating yourself as you will likely have to go into debt to cover those emergencies. (We found that most emergencies we experienced were much less than $1,000, but we did bump that $1,000 to $2,000 just because it made the next step more comfortable.
Stop using and cut up your credit cards
Now this one will be a tough one for most of you because you have likely associated security with these little plastic trouble-makers. IF you really want to get out of debt this step is pretty important. IF you have an emergency fund in place, eliminating any and all temptation to run up more debt needs to be eliminated as well. It’s just plastic, it’s not your life. You can always have new ones sent to you after your debt free and have your spending under control, and by under control I mean you can pay off your balance each and EVERY month. Want rewards? Perkstreet Financial offers perks for purchases made with your Perkstreet Debit Card. (I am a Perkstreet customer and LOVE them! They are better than any bank I have ever dealt with and have an expressed interest in your becoming debt free!) If you ask me it eliminates the “need” to have credit cards!
Create your debt snowball
On a sheet of paper, write down every debt you have whether you are current on it or not. EVERYTHING except for your house. IF you have a HELOC and it is more than 50% of your annual take-home pay, exclude it from your debt snowball. You would instead tackle that monster when you’re ready to pay off your mortgage later down the road. For this list there are a few ways you can list your debts. The one I used and recommend happens to be the most controversial one because it gets you to list your debts in order from smallest amount owed to largest amount owed. The quick wins that you receive in the beginning are a much needed and very motivational, but you can use the method you feel more comfortable with. The other asks you to list your debts in order from highest interest-rate to smallest, but get ready for a long haul because if your highest interest rate is also your largest debt, your first pay-off might take a while.
Implement your debt snowball
Now you’re ready to start knocking it out! It’s very simple from here. Pay your minimum payments on all your current debts, and use any extra, or disposable income to snowball the first debt on your list. Focus angrily on eliminating that debt until it is completely gone and out of your life! Once it’s gone, shift your intensity and focus on the next one on your list, until they are all eliminated and you are DEBT FREE EXCEPT FOR YOUR HOUSE!
Celebrate your debt freedom because you deserve it
Throw a debt free party and invite all of your friends, especially if they are in debt! 😀 If they want to know how you did it, share this checklist with them and introduce them to ENEMY OF DEBT!
Share your story with others
Now it’s time for you to motivate and inspire others to make the debt free journey a part of their life! As some of you know, I have a debt free series called “Debt Free News From a Debt free Reader“, and it is a very popular series but unfortunately I need more people like you to share your stories with others. It’s so motivating when you know you’re not alone and you never know when your story will resonate with someone else reading. If you’ve already become debt free, please submit your story by answering this questionnaire!
Love it!!! I can’t wait for the other post about each point.
I am on Implement Your Debt Snowball and so excited. Our future looks great and debt-free
Awesome Money Momma! Your future is shining bright!! 😀
Just yesterday my husband and I got in a huge argument about money and I decided I was going to devote my morning to getting a handle on what’s coming in and going out and your web site popped up and I am STOKED! This is just what I needed, and the timing couldn’t be more perfect. Thanks so much for your helpful, encouraging web site. Hubby and I are going to have our meeting tonight. Thanks!
That is so cool Kristen! I’m glad you found Enemy of Debt!! Good luck in your meeting tonight and I hope it goes well. As long as you both remember that you are a team and ultimately want to end up in a good place financially, you’ll be just fine. Sometimes it takes some time to be on the exact same page so be patient with one another. You can’t force one another to want the same exact things but you should both be on the same page as far as the betterment of your family goes. 😀
Hi Brad,
I am blessed to see your informative website. I am from the Philippines and I am involved in helping people of lower income bracket be debt free. The suggestion about saving a portion for the payment of debt is, to them, a huge impossibility given the fact that their earnings is just enough and many times less than their needs.
What would you suggest we do?
By the way, some also resort to credit card but with a view to using it as if it without thinking about where payment will come from.
Thanks for your help.
Jimmy
Thank you Jaime! The problem with low income earners isn’t a money management issue as much as it is an income issue. The focus should be on how to earn more, which in the situation you described would be difficult for me to say exactly how. The income is the key and no matter where someone is in the world I would think that they have it in them to earn more. Again, I am not familiar with the limitations with other countries as far as income earnings though. That’s a tough one. No matter what the credit cards need to be cut up and thrown away because a credit card will never lead to anything except for more debt for someone with little wages.
from what you said in your comment, the best advice would be to increase the income if possible and to avoid credit cards all together no matter what. 🙂 Hope that helps!
Dear Brad,
I guess you’re right about focusing on helping them increase their income stream. We tried working on that issue by teaching them to save no matter the amount (even if it is small) but it was good for a while until some financial obligation and unplanned expenses hits them and the capital for the new income stream is eaten up.
Thank you for your suggestion. We shall look for ways to increase income for these folks.
May you prosper and continue to help many more get our of debt.
Jimmy
I hear ya Jaime! Getting them to save is still great advice because it teaches them to set goals and gives them hope for some kind of livable retirement when they reach that time in their life. I wouldn’t change that advice if I were you but should try to emphasize the importance of not just accepting the wage they currently earn IF there’s a possibility they can earn more and continue to grow their income. As you probably know, too many Americans simply accept their current wage for what it is without ever looking outside the box to see if their reaching their true potential. For me it’s like working out to lose weight, or more specifically doing P90X. There comes a time in the workout where you want to give up and stop prematurely, but if I quit every time I reached that level I wouldn’t be losing the weight as successfully as I am. I go the extra mile because it’s worth it to do so and I think the same can be said for ones vocation or career path. Anyway, sorry for the long response man, I just didn’t want you to think I was dissing the savings advice you’ve been giving. That’s NEVER a bad piece of advice to give. Imagine if everyone, and I mean EVERYONE, put just 5% of each month’s revenue every single month? Just imagine! (I just woke up!) That was a heck of a dream though! LOL 😀
I love the idea of creating a checklist that you can print off an physically check each items as you accomplish it. Although I have a different opinion on cutting up credit cards I think your concepts are sound. It is important to factor in what works for you too. I have a credit card and use it like it is hard cash. It is paid off each month by subtracting from my fund jars (necessity, education, savings for spending, play money, gift funds). It works for me and I get a bonus of accumulating travel miles that I will later use for my upcoming holiday 🙂