This article lays out three more debt-free strategies as you strive to focus more on wealth than debt.
- Elect Plastic Surgery: Cut up the credit cards.
- Build up an emergency fund.
- Focus on wealth rather than debt.
See the companion articles noted below for the rest of the seven tips to change the way one can think about money.
Elect Plastic Surgery:
- Cut up credit cards but keep accounts open (closing accounts lowers your credit score). If cutting them all up is too radical, at least make it hard to use them. Leave your cards at home. Store them in a place that's not easily accessible like a safe-deposit box. One advisor suggests freezing credit cards in a block of ice!
- Pay more than the minimum. Pay off the cards with the highest interest first. Focus on the highest-rate card first. Pay as much as possible month while making only minimum payments on the other cards. Automate minimum payments. When the first card is paid off, use the same strategy on the next highest rate card and so on until they are all paid off: debt free.
- Stop borrowing money or applying for new credit. Save for the purchase or put it on a wish list for when the budget has room.
- Go green. For everyday spending, carry around a set amount of cash to spend each week. Forking over cash makes for better spending decisions. When the cash runs out, stop. When only plastic will do, shopping online, for instance, use a debit card.
Build up an Emergency Fund
Establish an emergency fund as soon as possible to avoid relying on debt when an unexpected expense occurs. Don’t use the emergency fund to pay off credit card balances. Don’t touch the emergency account at all — it doesn’t exist! Use unexpected extra money (tax returns, etc.) to build up the emergency fund and pay off debt after that.
Change the Mindset. Focus on Wealth Rather than Debt.
A focus only on getting out of debt, highlights the debtor. That’s victim thinking. It can be empowering to focus on contributing to overall personal wealth..
Create a Balance Sheet
In addition to a workable budget, a balance sheet helps you focus less on debt and more on your personal wealth. List assets on one side and your liabilities on the other. Assets should only include things you can easily sell and there approximate value. Listof all your liabilities, exactly how much is owed to the world. A spreadsheet is handy for this. Include monthly payments, interest amounts, balances, and a running grand total of all your balances.
Update the balance sheet monthly as a debt is paid off, and watch net worth steadily improve. It’s very motivational.
The real value of this exercise though is in developing the habit of checking the financial situation every month. Watching wealth increase reinforces the good habits.
Read also the big picture article focuses on the keys to Getting Out of Debt:
- Spend less than the paycheck!
- Make more money
- Get on the same page as spouse or partner
The companion keystone article deals with making a budget that works. A sound budget is the single most powerful tool in not only getting out of debt, but also staying debt-free.
In addition to the companion articles noted above, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously by Jerrold Mundis has more great information.
