73 Real Life Debt Elimination Tips
Story featured on:
Zen Habits
1. Don’t get into
debt. Use cash for all your purchases and don’t take on
any debt except home and auto.
2. Spend less than you earn.
3. When debt is closed out, put 60% in savings and enjoy
the remain 40%.
4. Take stock of all your liabilities, so you know
exactly how much you owe to the world. Put them in a
spreadsheet, with monthly payments, interest amounts,
balances, and a running grand total of all your
balances. Update it monthly as you pay off debt, and
watch the overall amount go down slowly. It’s very
motivational.
5. Have only one credit card with a low limit, and only
one loan with monthly payment not exceeding 25% of
income.
6. Build up an emergency fund first. If you come into
extra money (tax returns, etc.), use it to build an
emergency fund and pay off debt after that.
7. Cut up your credit cards.
8. Speak to a credit counseling service to help work out
a plan: your “must pay” outgoings, arrange with
creditors to freeze interest and accept a revised
monthly payment. Warning: a reader informed me that
using a credit counselor will show up on your credit
report and adversely affects your FICO score — not as
bad as a bankruptcy, but it is coded, and lenders can
see it. Only exercise this option if you’re really in
dire straits.
9. Stop using credit cards to make it to the next
paycheck. Stop getting further into debt.
10. Don’t overpay your debts — leave enough so you have
enough for regular expenses too.
11. Avoid eating out. Cook your own meals, except on
very special occasions.
12. For entertainment, visit friends and be creative on
how to entertain yourselves and your family without
spending a dime.
13. Don’t pay off your credit card balance from the
emergency account. Don’t touch the emergency account at
all — it doesn’t exist!
14. Look for expenses coming up in the future and plan
for them, so you don’t have to go into debt when they
come up.
15. Make a budget - Purpose every dollar (including some
buffer).
16. Snowball the debt - Pay minimums on everything,
attack the smallest balance with all the extra cash you
can assemble, then move on to the next one.
17. Be on the same page as your spouse or partner.
Competing interests are suicide.
18. Recognize your spending tendencies (and your
family’s) and place limits on them. Develop good habits
instead.
19. Read Dave Ramsey. Read “Your Money or Your Life”.
20. Keep trying and don’t give up. Make a commitment,
and if you aren’t getting out of debt slowly but surely,
revisit that commitment. Change is difficult and it
takes drastic change in mindset and behaviors to get out
of debt. Anyone can do it - as long as you really want
to do it.
21. Stop spending! You have to really, truly want to do
this. Otherwise, you’ll put yourself on a financial diet
and then crash and burn and find yourself justifying why
you deserve to spend so much money on a new iPhone when
you have a perfectly good phone and $20,000 in debt.
22. Praise yourself for every small accomplishment. But,
don’t praise yourself by spending frivolously.
23. Find the tools that work for you and stick to them.
If the tools aren’t working, find new tools. There are
plenty of tools and ideas out there - for free.
24. Change yourself. If you have a spouse or partner
that is contributing to the debt, it can be a big
challenge to get them to change. Focus first on changing
your behaviors and attitude.
25. Be realistic. If you started accumulating debt three
or four years ago, realize that it will probably take
you more then three or four years to get out of debt and
stay out of debt.
26. Create a realistic budget. Put as much money as you
can towards paying down debt and having an emergency
fund, but allow for a little bit of. Only the truly
dedicated can live with no social/recreational
activities for the amount of time it takes to become
debt-free.
27. Eliminate. Take a hard look at what’s truly
necessary, and be willing to make compromises. Cable TV,
satellite radio, and lunches in the office cafeteria are
not necessities. If you have a hard time letting go of
these things, run your numbers through a debt calculator
twice - once with your current budget, and once with
additional money currently paying for niceties. You’ll
be amazed at how much of a difference those few extra
dollars make.
28. Get creative. If there’s something you think you
don’t have time to do more frugally, find a way around
it. For example, cooking at home is much cheaper than
eating out. If you don’t have time to cook, try
investing in a crock pot.
29. Be patient. Debt reduction is a long, slow process.
Depending on the method you use, you may see no
significant progress at first, but it will happen.
30. Stop borrowing money - no matter what! This means no
more credit cards, no more car loans, no more cash
advances, no more home equity lines, etc. If you can’t
afford to buy something with CASH you have now, then YOU
CAN’T AFFORD TO BUY IT.
31. Save up the money and buy it with cash. By the time
you’ve saved up the money, it’s very likely you will
have realized you don’t even need the item you were
thinking about buying anyway. This happens all the time.
32. Track your expenses in a software program like
Quicken. Categorize your expenses and report out how
much you spent in each category so you can easily spot
your problem areas (eating out, clothes, gas), then
target those for reduction. Always know exactly how much
money you have in your checking account.
33. Maximize your 401K contribution. Every time you get
a raise, increase your contribution by 1-2% because you
won’t miss the extra money if you don’t ever see it.
34. Pay yourself 10% first. Put this into an account
that is hard to touch. A money market account can earn
good interest. Make sure it is a chore to get the money
out (you have to drive to the bank), so you will only
tap it consciously and for major expenses.
35. Make a plan … ANY plan. You’re better off with a
mediocre plan than no plan at all. When in doubt, the
“snowball method” is simple and works well.
36. Leave yourself some “wiggle” room. Life throws some
unexpected expenses your way, so include some slack in
your plan for these little setbacks.
37. Have a long range vision. Keep your eyes focused on
where you will be five (or ten, or fifteen) years from
now, because getting out of debt takes time.
38. Turn off your television, and discard catalogs and
other advertisements immediately (but not coupons!). Do
this, and your urge to buy stuff you don’t need will
plummet.
39. Move into a smaller place. Forcing you to get rid of
a lot of stuff that you’re probably still in debt for
will show you just how little any of it matters.
40. Find your purpose. Is it your children, to start
your art business, work from home, free money so that
you can give? Finding motivation beyond the money drives
our passion. Otherwise our drive is limited. This
passion will lead us find out the ‘right’ things to do
like stop borrowing, creating budget, etc. Take a look
at the things you value deeply and view that framework
to judge your actions buy.
41. Examine your expenses and eliminate the unnecessary.
Thing about gym memberships you’re not using, cable TV,
Netflix, other types of subscriptions and see which are
least necessary.
42. Got a raise coming up? Bookmark it. Pretend it
didn’t even happen, and funnel all of the new money into
the debt relief.
43. Focus on the debt and getting out of it. Not
focusing and humming along on credit is what gets people
in trouble every time.
44. Change how you think of money. Calculate how much
money you make (net) per hour. Do this regardless of
whether you are a business owner, salaried or hourly
employee. Now apply the time factor to any purchase you
make. For example, is that 32″ flat screen television
you’re thinking of purchasing worth 10, 20 or 30 hours
of your time. Once the dollar amount was removed from
the equation and the time factor applied, spending
habits can change overnight.
45. High interest. Pay off the cards with the highest
interest first.
46. Balance transfers. By transferring balances on
credit cards, you can consistently pay an average of 4%.
One thing to look out for is transfer fees: make sure
that the fee isn’t greater than the interest you would
save.
47. Optimize small long-term advantages instead of large
short-term payments — for example, go for the difference
between 8% and 6% on a note, or cancel satellite TV and
save/invest/pay debt with the difference.
48. Educate yourself on your alternatives. Sometimes we
spend a lot on things because we assume there are no
alternatives. Is cooking at home as bad as you think?
What about ten-year-old cars? Roommates? Cheaper parts
of town? Thrift stores? Libraries? Bicycling? Wearing a
sweater and fuzzy slippers inside in the winter so you
can turn down the heat? Ask questions, do some
experimenting, do some research. Find your biggest
expenditures and do some brainstorming and some
googling.
49. Think about your goals. The author of The Tightwad
Gazette was willing to work harder to save on food,
clothing, and entertainment so she could spend more on
housing, have more kids, and let one parent stay home
with the kids. Quit spending money on stuff you don’t
care about.
50. Pay attention to whether you’re buying stuff just
because of societal norms or parental expectations or
keeping up with the Joneses. Hang around people who are
the way you want to be so that peer pressure can be used
for good instead of evil!
51. Pay more than the minimum.
52. Make it a habit. You’ll be very happy when you have
some extra spending/saving money after your payments
stop.
53. Think about wealth rather than debt. If you think
“I’m going to get out of debt” you will keep thinking
about debt. If you think “My financial situation will
contribute to my overall wealth,” that thought can keep
you going.
54. Extra cash. When you make extra money from overtime
or bonuses, use it to pay debt.
55. Debt slavery. Realize that (almost any) debt =
slavery. If you don’t mind debt, why get out of it?
56. Read personal finance books, publications, blogs.
Self-development blogs like this Zen Habits are also
great.
57. Think positive. Telling yourself “no” stinks,
choosing to not go on vacation stinks, looking around
and feeling like everyone else has more money than you
stinks, even if you make a good chunk’o’change. Instead
think about how each month you owe $1 less is a good
month.
58. Pay off your smallest debt first to get the momentum
going. Some people go by the rule to pay the highest
interest ones off first, but others like the rush from
paying a card off completely and closing it. It’s a
great motivation to continue.
59. Be willing to make sacrifices. Remember, you own
things. They do not own you. We had to sell one of our
cars and get a “beater” but this was the best move we
could have made. It was so empowering not to have a car
note hanging over our heads.
60. Put a note in your wallet with this text: “DO I
REALLY REALLY NEED THIS?”
61. See yourself as completely debt free. FREEDOM! What
is that gonna feel like. Imagine it.
62. Use supermarket fliers and plan menus for the week,
clip coupons, and put the amount of money you save from
coupons each week into a savings account.
63. When you make your budget, be honest. Make sure you
budget for gifts, entertainment and whatever other
things we all spend too much money on and don’t like
admitting.
64. Find free or low cost entertainment. Check the local
newspaper, or look online and see what upcoming events
are going on. Many towns have free concerts in local
parks, the local libraries often have fee arts and
crafts classes, get a state tourist guide and see what’s
going on in your area, and be a tourist in your own
town.
65. Be creative. Learn to paint or refinish hand me down
furniture, or sew curtains and pillows. I have been
reading DIY blogs and gotten some really great ideas for
my home.
66. Start a garden. Grow tomatoes, peas, beans, and
herbs in pots if you don’t have a yard.
67. Make more money. Sometimes you can only stretch your
current income so far. But how can you start an online
business, without spending a lot of money? And without
your own product? By selling other people’s products -
as an affiliate.
68. Educate. Above all else, teach your children early
so they don’t make the same mistakes as us!
69. Create a balance sheet and update it every month.
List your assets on one side and your liabilities on the
other. Assets should only include things you can easily
sell and there approximate value. Liabilities should
include all of the money you owe others. If your
starting value is negative your goal should be to make
that number smaller every month. If your number is
positive your goal should be to make that number larger
every month. The real value of this exercise though is
it puts you in the habit of checking your financial
situation every month which will reinforce habits that
are increasing your wealth and hopefully allow you to
catch and stop habits that are decreasing your wealth.
70. Credit documentary. Watch the PBS documentary about
credit card companies. Get mad, really mad and start
hating the credit industry. They are enabling you to do
some terrible things to yourself. Cut up your cards and
pledge to never use them again. It is a form of slavery.
71. And another. Another movie that looks critically
about credit cards is MaxedOut.
72. Oprah. Great advice on Oprah’s Debt Diet along with
great forms to help you find out where you are and plot
a course out.
73. Read the book: How to Get Out of Debt, Stay out of
Debt and Live Prosperously by Jerrold Mundis. Once
you’ve read it, read it again.
