Get Out of Debt

Whether you’re losing sleep over how you’re going to make your next house payment or dodging calls from bill collectors, being in debt is stressful. It affects every part of your life and health, but not all is lost. With the right determination and plan, you can rise above your debt and breathe easy again.


Stop borrowing and don’t buy ANYTHING ELSE on credit. If you don’t have the cash to pay for it, don’t buy it. 80% of people who take out home equity loans to pay down debt accumulate the same amount of debt within three years1 because they didn’t solve the real problem: spending more than they earn.
1: Sudweeks, Bryan. "Develop and Use Personal Debt-Reduction Strategies." BYU Marriott School Personal Finance. September 2011. Web. 02 Jul. 2013.

Not sure if you can afford something? Or just need some comedic relief? SNL promotes a great book for those trying to make changes to their spending habits. [link to snl clip]

Step 2: CUT BACK

Reduce your expenses so you can start paying off your bills. Create a budget (see how to create a budget here), and stick to it. Cut out the extras and resist the urge to book vacations or buy things you can’t afford.  Do whatever it takes to achieve financial freedom. This couple from Utah paid off $25,000 of debt in one year by simply deciding to “give stuff up.” They stopped going to movies every week, cut way back on eating out, started clipping coupons, traded their cars in for older models, and most importantly: when they ran out what they had budgeted for the month, they stopped spending


Make a list of each outstanding debt (credit card balances, loans, unpaid bills) and its interest rate. Take what you’re saving from cutting back and apply it to your most expensive debt (the one with the highest interest rate). Some people like to pay off the smallest debt first for a sense of accomplishment. Whatever method you decide to use, the most important aspect of paying off debt is the “snowball” approach: once you’ve paid off your first debt, take the amount you were using to pay that debt off and apply it to your second debt and so forth. See an example of a “snowball” debt elimination calendar here.

Consider contacting a credit counseling agency. They may be able to consolidate debts to a lower rate or negotiate a lower balance. Be careful because not all agencies are equal—some are non-profit and some are for profit (Check this article about credit counseling strategies for a list of questions to ask before choosing an agency). The National Foundation for Credit Counseling can help you find a qualified low-cost nonprofit agency by calling 1-800-388-2227 or online here. Note that nonprofit does not mean free and regardless of whether you use an agency or not, you will still have to reduce your expenses to be able to successfully pay off your debts.


Most bankruptcies are caused by job loss, medical expenses, or marital status change (divorce, death, or separation). To substantially reduce your risk of getting into debt in the future, continue your education (to make yourself more employable) and get adequate insurance (life, health, and disability). According to the nonprofit Corporation for Enterprise Development, nearly 44% of Americans are one financial hardship (e.g. job loss or health crisis) away from complete disaster because they have less than three months' worth of savings.  So once you have paid off your debts, continue to keep your expenses low until you are able to build up enough of an emergency fund to protect against future economic hardships.

Getting out of debt takes determination, but it's worth it. Enjoy the smaller victories along the way and get ready to enjoy true financial freedom.

Anyone out there had to get out of debt (or still working on it)? What worked for you?

For those of you who have never been in debt, how are you preparing for a financial emergency? How many months worth of expenses do you have in your emergency fund? Most people have life insurance--what about disability insurance?


  1. I used to be a shopaholic, which gave us a lot of debt. Now, on top of student loans, a car loan, and credit card loans, we've got a lot to work on. But on the bright side, we've been following Dave Ramsey's guidelines, and it looks like we will be nearly debt free by the end of the year. We check our budgets almost daily, and communicate about what's important or needs to be amended. We also have a small emergency fund, and are trying to increase it.

    1. That's is so incredible! Way to go!!! I've never actually read Dave Ramsey, but I know Lauren is a fan. I personally think setting and checking a budget is key. That's awesome that you guys check it daily and talk about it. Some people avoid taking the time to budget as a couple because they think it'll be stressful and affect their marriage in a negative way, but I find it has just the opposite effect. If you set your goals together, you're much more united and determined and actually grow closer.

    2. You guys should call into the show when you're debt free and do that scream thing they do!! I'm impressed at how much you've done!


Related Posts Plugin for WordPress, Blogger...