6 Tips For Eliminating Debt

Being deep in debt is like having a weight around your neck or a storm cloud threatening heavy rain. Sometimes, it can seem like it has us beat and is here to stay, especially if we have been battling debt for years. Fortunately, people just like you have found out that the battle with debt can be won using common sense techniques. I have personally compiled for you a best-of list of 6 tips for eliminating debt once and for all from your life. My goal is to offer you a path to financial freedom and renewed peace of mind.

Tip #1: Fall in love with the image of a debt-free you: Mindset is everything. If you are like most people deep in debt, you have fallen into the trap of living beyond your means (i.e., you spend more than you earn). This comes from the buy-buy-buy mindset so common today, whereby we make purchases to feel better about ourselves. Your first step toward getting out of debt is to break up with buy-buy-buy mindset and instead fall in love with the image of a debt-free you. Close your eyes and envision yourself debt-free: how does it feel? Okay, now hold onto that feeling and learn to love it more than the temporary high you attain whenever you make that nice-to-have purchase. Hint: associate buying more stuff with being in prison and paying down debt as digging out an escape route right under the warden’s feet.

Tip #2: Stop using all but one credit card: Most people get into credit card debt by regularly using too many cards. Credit cards are not bad in and of themselves and having a large line of credit can help your credit score. But, credit card companies make most of their money off of us when we start charging more than we can pay off! So, put all of your credit cards away in a closet, except for one which you can use for dire emergencies.

Tip #3: Create a monthly budget: Next, you need to get a handle on your expenses by separating them into two categories: needs and nice-to-haves. Now, create a monthly budget by prioritizing your expenses in the following way: 1. Cover your needs first (e.g., home, food, insurance, monthly minimum debt payments, etc.). 2. Next, pay as much as possible toward your highest interest debts (see Tip #4). 3. Finally, allow yourself a small goodie from your nice-to-have list as a reward whenever you hit a milestone like paying off a credit card.

Tip #4: Pay down high-interest debt first: Take advantage of any low-fee balance transfer offers offered by credit card companies, but only when doing so means moving your debt to a lower-interest card. Then, rank your various debts in order by highest to lowest interest. Rigorously pay what you can each month toward your highest-interest debt first and pay only the minimum balance due on your other debts. Most experts agree that this is the fastest, smartest way to pay down your debt.

Tip #5: Set up an emergency fund: One of the biggest psychological challenges of being in debt is the feeling that you are a hairbreadth away from financial ruin: talk about stress! A way to overcome this is to set up an auto-pay feature through your bank that creates an emergency cash fund in a separate account. Experts say we should all have the equivalent of six months of income set aside, but any amount you have as a buffer will afford you huge peace of mind. Note: the auto-pay feature is key because you never want to see this money: it will come out of your primary bank account at the beginning of each pay period and will not even get factored into the budget you have set up as per Tip #3.

Tip #6: Avoid most new investments until your high-interest debt is paid off: Getting out of debt is a balancing act consisting of constantly making good decisions. One temptation is to start making new investments while still heavily in debt. While this can be advisable at times, the general rule of thumb is to pay all debt down rather than make new investments whenever the interest you are paying on that debt is higher than the return you would be earning on a potential investment. Consult a certified financial planner if you have more questions about this.

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