Finance Friday: Get Out of Debt

We all remember the commercial of the guy who is driving the lawn mower and crying for help “I am in debt up to my eyeballs.” To many it resonated because every penny we have coming in is earmarked for some debt. National averages say that the typical American family spends 110% of what they make. Sooner or later that is going to catch up with us. For many it has and they have lost cars, houses, and much more. For some this has come because of a loss of job or debilitating health issue but for most it is because we send far too much.

The key to getting a handle on this is to get out of debt. Cash is king and the more expendable cash you have each month the more peace and freedom you will have. Last week I mentioned that the average family has $30,000 in credit card debt, the worst kind of debt. The interest rates alone chew away at any extra cash we get. I want to suggest a way that can get you out of debt. It worked for our family and many others too. I talked with a person who had tens of thousand in debt and they busted their butts and in one year paid it all off. It can be done if we will do the work.

Let me introduce the Debt snowball. You have probably heard it before but it bears repeating. This is the process of paying off your bills in a way that creates leverage. First lay out all of your bills and put them from smallest to largest. Take the smallest bill and pay it off first. Any extra cash you get apply it to that bill. Once you paid off that bill take all of that money you were using to pay it off and apply it to the next smallest bill. Do this with each bill until all your bills are paid off.

It sounds rather simple but it is very hard. The temptation is once you get a bill paid off to reward yourself by going on a trip or something. DON”T DO IT!!! Use some common sense. You have been rewarding yourself too much already. That is why you are in this predicament in the first place. Once you get rid of this debt you will have a feeling that is unlike any other. Stay focused and in no time you will be in a better place.


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