First, let's admit what we all know: debt sucks. It sucks money out of your pocket when you pay interest and fees on your debt. It sucks your free time as you work overtime to pay for your debts. It sucks energy out of your relationships as you stress about debt.
In another article, I've written about good debt and bad debt. In short, good debt is a single mortgage on your home for less than 80% of its value. Everything else is bad debt. Pretty simple, huh? So how do you get rid of the bad debt, and end the sucking? Planning.
Know your position
When you work, you analyze your position all the time. On a traffic stop, you analyze where the suspect vehicle is, your cruiser is, and where unrelated traffic is. You analyze the positions and actions of the vehicle's occupants. When you interview a suspicious person, you analyze their actions, their behaviors and their position relative to you and relative to weapons and escape routes. Knowing your position is key to your safety as an officer; it’s the same thing with your financial safety.
First, gather all your statements and bills and figure out what your total debt is. Look at the debt in comparison to your family income. Your home should cost no more than 35% of your income; that's what banks allow. Personally, I recommend shooting for 25%. This helps keep you from being house rich and cash poor. Your total debt payments, including cars, boats, credit cards, house, etc., should not be more than 40-50% of your income (the range varies depending on which expert you consult). Personally, I find anything over 35% is grounds for major stress and should be avoided if possible. But if you are already there, you already know what I mean.
Change your spending
You cannot get out of debt if you do not budget and change your spending. After all, your spending habits got you where you are. You need to make a conscious choice on how you are going to spend every dollar you earn. Don't spend more than that, otherwise you'll be tempted to charge it and you'll never get out of debt.
Changing your spending may mean cracking down on some of those "nice-to-have" things that cost you money. It might mean getting rid of satellite TV and the Ultimate Sports Package in HD for $95 a month. It might mean cancelling the Caller ID and Voicemail package on your landline phone for $15 a month.
It could also mean selling some toys. For example, I owned a camper that I was paying interest on (yes, I used to live with debt). We used it twice a year. When my wife and I committed to getting debt free, we sold it. You might have ATVs or a motorcycle or any other toy that you are paying on. Give serious thought to selling it and using the money to help reduce your debt. Even if it is paid for, it may be up for sale. See, if the ATV is paid but you have $8,000 in credit card debt, then the ATV isn't really paid for. You just used the money that you would have spent on the credit card stuff to pay the ATV off. Don't overlook anything as you consider what can be sold to reduce your debt.
You cannot attack your debt unless you are serious about it... and serious debt reduction usually means living without some of life's toys for a while.
Attack the debt
Once you have your budget planned, you can start attacking the debts. Selling toys is an easy way to start your assault. We got about $7,000 for our camper - talk about a major assault on debt! You can also look at selling lots of the little stuff. Garage sales, while a hassle, can yield hundreds of dollars while making lots of space in your house. EBay and other online auction places are a good way to get rid of stuff that is valuable, such as collectibles you no longer need.
Those are big, lump-sum additions to the debt attack. You also have to budget your regular payments and make them more than the minimum. There are two schools of thought on which debt to attack first: the smallest or the most expensive. Attacking the smallest, as Dave Ramsey suggests, gives you a psychological boost as you generally pay that off quickly. It gives you a reward for your hard work and keeps you motivated.
The other option is to attack the debt with the highest interest rate, since it is costing you the most. Logically and financially, this makes the most sense. But if you need that psychological boost of a victory, it can be frustrating as it may take longer than going after the smallest debt. Either way, once you pay off one debt, you then take what you were paying on that debt and use it to attack the next debt, and so on.
Staying out of debt
There are three key points, once you start your debt attack, to staying debt free. First, stop using credit cards and other debt. Second, stick to a budget. Third, have an emergency fund to help pay for those unforeseen events that you used to charge on the credit card. Start living without using debt, so that once your debt is paid off, you don't have to ever go back into debt.
Conclusion
Getting out of debt is really hard work. Know your position, change your spending, formulate your attack, then live to avoid future debts. By coordinating all of this, you can start to live debt free.
And being debt free definitely does not suck.
Jonathan Bastian
Jonathan Bastian is a police officer in Lexington, Kentucky. He is a noted author on thermal imaging technology, but has a passion for personal finance and helping people spend money wisely. He has a bachelor's degree in business economics and international relations (commerce emphasis), and paid for several Spring Break trips by "buying low and selling high." He is still a cop by trade, so his suggestions and comments are not intended as formal tax, financial or accounting advice. Consult paid professionals if you need formal guidance.
