Baby Steps!
Getting out of debt is no different than overcomming any other struggle or obstical in life. To be successful it helps to take one small step at a time.
Create small goals that lead to the big goal of becoming and living debt free.
I encourage my clients, as Dave Ramsey does, to follow seven baby steps to assist you in becoming debt free.
The baby steps are a good overall map to follow along with:
- Prayer, and relationship with Christ Jesus
- You must commit to NEVER borrow money EVER for ANYTHING other than possibly a house.
- Talk with spouse and get him/her on the same page as you concerning finances.
- Every month do a written budget down to the penny
- Temporarily stop all retirement contributions (shouldn't be for more than two years)
- Get current on all major bills (You MUST have Shelter, Food, Utilities, Basic transportation)
- Get health insurance NOW (chances of getting sick w/ major medical bills are larger than that of death), especially if you have children.
- Get life insurance NOW if you have considerable debt/your family couldn't make it financially if you died. Especially important if you have children !! Social Insecurity provides only a small amount of coverage if you have dependents.
- Amputate "toys" (bikes, boats, ATV's etc) if they will keep you from completing the snowball within 24 months
- Cut lifestyle (Cut cable tv, cellphone, land line "extra's", Internet, subscriptions, eating out, etc) and/or take second job if $1000 EF will take more than 30-90 days. (depending on income)
- Live below your means
Baby Steps (finish each step before moving to the next) sub-steps are recommendations while in each main step.
Baby Step 1 - Save $1000 In baby EF
- Chop up credit cards (You have an EF now, no NEED to keep those CC's !!)
- Amputate cars that you can't pay off within 24 months (You have an EF to fix the "cheap mobile" if something should happen)
Baby Step 2 - Do the debt snowball
- Start car replacement fund (do not PURCHASE car until step 3 is done or one time repair is more than cost of a good used car)
Baby Step 3 - Save 3-6 months EXPENSES in Emergency Fund
- Start furniture or other non-essential stuff replacement fund
- Move up in car if you still feel the need to (must pay cash for it)
Baby Step 4 - Contribute 15% to retirement
- Take your first vacation since starting this process if you can pay cash for it (no using the EF !!!)
- Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.
Baby Step 5 - Save for kids college fund (skip to Baby Step 6 if you don't have kids)
Baby Step 6 - Pay off house
Baby Step 7 - Start giving - Live like no one else since you have been living like no one else