Guest post by The Happy Rock. The Happy Rock writes about personal finance at TheHappyRock.com and dug himself out of over $70,000 a few years back. The Happy Rock also created a debt snowball calculator to aid people in getting out of debt faster.
As the hustle and joy of the holidays are fading and the realities of a New Year are setting in, leftover holiday debt can ruin the excitement of the New Year. If you find yourself stuck in this situation, here are five tips that will help you dig out and loosen debt’s shackles.
Come to Terms with Where You Are
The first step is to visualize the hole you are in. Collect a list of all your debts, the interest rates, and the minimum payments. Now look at the list and probe how it makes you feel. You can’t move forward without coming to terms with where you are and how you got there. If you don’t change the behaviors and circumstances that got you into debt, no tactics or strategies are going to keep you out of debt. Have you been relying on stuff to make memories instead of experiences? Are you trying to keep up appearances or succumbing to the advertising pressures of our society? Are you not living within your means or not even aware of what your means are? It may take days or weeks or months to get to the bottom of the issues, but the important part is to be actively inspecting your life. Next, take your debt list and move onto Step 2 because action will help you reveal more insight into your situation.
Stop the Bleeding…Stop Charging
You can’t get into more debt if you don’t have an accessible line of credit. Freeze your credit cards in a block of ice, cut them up, give them to a trusted friend, whatever it takes. It really is that easy. It is the easiest of the steps, but it is the one that takes the most courage. If you give yourself time to think, you will find a way of talking yourself out of it. Try not to think, just do it. If you don’t have enough money to cover your expenses and need credit just to get by, you don’t need the tips in this list….your need more drastic measures.
Execute a Simple Plan
I recommend the Dave Ramsey debt snowball method. The plan is simple. Take the list from Step 1 and pay the minimum on all your debts, except the one with the smallest balance. Put any extra money you can scrounge towards paying off the smallest debt as fast as possible. As debts disappear cross them off the list and snowball the extra money you scrounged and the recouped minimum payments into your new smallest debt. I love the positive psychological components of the snowball method and the quality of the snowball community.
ATTACK!!!
Capture your sick and tiredness and your frustration and funnel into your debt destruction. Get excited. Use every tool, trick, and ounce of energy to get out of debt as fast as possible. Sell your junk, cut cable, eat at home, and get around others with the same fire. Use this debt calculator to figure out how to get out of debt faster and visualize the difference ever dollar makes on your debt freedom date. In my experience Step 4 is where your behavior and perspective on life will change forever.
Save Up for Next Christmas
The way to stay out of debt is planning. Choose a reasonable amount to spend at Christmas next year and create an automatic weekly transfer to put that money in a savings account. That might sound hard in the midst of your debt destruction, but $20 a week will give you $1,000 dollars at Christmas. The principle is that if you know an expense is coming you need save now or else it will become debt later. This applies to all upcoming expenses not just next Christmas.
That’s it. If Christmas debt or debt in general has you down, actions not thinking are going to change your life. So get moving!
If you have any questions or need any help, feel free to contact me.
Thanks for the opportunity to guest post!
I will respond to anyone who takes the time to comment.
The last step is very important. And you can actually do it for all purchases, not just Christmas shopping. Put a few bucks here or there in an envelope and you can end up paying cash. For those used to using plastic, the feeling of buying with cash can be very powerful.
Kris,
You are right, you can do it for all known purchases. An emergency fund would cover things like freak accidents and other purchases that can pop up unexpectedly.
I also agree that buying with cash provides a different emotional experience than buying on plastic. Cash is particularly useful when you want to teach yourself the value of a dollar.