(Article by Brad Chaffee of Enemy of Debt – who as you can tell from this post, REALLY hates debt! ;) J$ will be back in action pretty soon now that he’s getting a bit more sleep these days, but he’s still pretty shocked he created a whole new human being to watch out for now! Haha…)
I recently received a reader questionforwarded on to me from J. Money himself, so I figured why not do a guest post for him to show off my awesome answer? :D This guy can’t be alone here so hopefully it helps anyone else over their heads with debt right now.
Here’s what the email said:
“Hi, I came to your site from budgetsaresexy.com and you seem to have good resources to get my debt in check. I’d like to know where you would suggest I start reading. I know this is a general question, but you gotta start somewhere.
I have over 15 credit cards and $30,000+ debt not including 2 cars.”
Here’s what I responded with:
If you are serious about getting control of your money, you are likely going to have to step outside of your comfort zone which includes changing your debt mindset. Learn about why debt is bad for you and how you can benefit by not owing anyone any money ever again — with an exception for a future mortgage (15 year fixed rate w/ 20% down) and possibly credit cards as long as you can pay off what you spend each and every month.
You might not be ready to go extreme like my wife and I did by cutting up all of our credit cards, but for now I think stopping any further accumulation of debt on any of those cards is essential to turning things around. If you have car payments you’ll want to learn about why having car payments is one of the worst and most expensive ways to own a car. Forget leases too and just look for 1-2 year old cars that are reliable and pay cash.
My wife and I started with a hooptie after selling our “car payment” and have upgraded little by little. Last year we spent $6500 cash on a minivan for our growing family.
If I were you I would put both cars up for sale. I would sell one at a time. I would borrow about $2,000–$3,000 plus the amount that I’d need to cover the remainder since the sale price will not likely be as much as you owe the bank. I would do the same for the second car. Extreme I know, but we did this very thing except we didn’t have to borrow any money to cover the difference or to buy the replacement car. Right from the start we knocked out $8500 off our debt tab which felt super awesome! We’ve never regretted that decision.
I would then start looking for things around your house to sell at a yard sale, or on eBay/Craigslist, or local consignment sales and work on tracking your spending by starting a zero based budget. (There is one available on Enemy of Debt for free to those with MS Excel.) I would then start following Dave Ramsey’s baby steps (detailed in the Total Money Makeover) by setting aside $1,000-$2,000 in a baby emergency fund which enables you to focus like crazy on starting your debt snowball and eliminating all of your debt except for the house. (The house comes later in baby step 6)
After your debt free you’ll have more money to plan for retirement, plan for kids college if applicable, paying off the mortgage and building real wealth. Without minimum payments you are unstoppable as long as you truly change your money habits.
As far as reading, I would highly recommend Dave Ramsey‘s Total Money Makeover and I Can Teach You How to Be Rich by Ramit Sethi. Ramit has a different approach to money management but definitely has a debt free mindset. What you want to focus on in your reading is how you can change the financial behaviors that got you where you are today. Dave Ramsey deals with the Psychology of Money and Ramit also has some great stuff on psychology on his blog as well.
For motivation on becoming debt free, The Dave Ramsey Show is the best to listen to on Fridays because ordinary people call in to the show and scream “We’re DEBT FREE!!!”. It’s crazy inspiring!!
My wife and I have not borrowed a single penny since January 1st, 2008 and we have no credit cards. We don’t play the credit score game and our life has been super simplified (and less stressful) as a result. We feel that the credit score game encourages debt because debt is the only way you can “build” your credit score. It’s not for everyone but we love it and fully intend on paying for our next house with cash money in full. We’re happily renting until that day comes. :)
COMPLETE debt freedom has CHANGED OUR LIVES COMPLETELY! We have the ability to take advantage of more opportunities because our money is not pre-spent on interest and minimums before we ever earn it. We also don’t have to make as much to cover necessary expenses. We live on (rent, utilities, food, etc) $2,000 a month and my wife only works part time (24 hours a week) at the hospital. We even have a little extra at the end of the month for fun stuff.
Our plan is to now focus on raising our income by growing two businesses — Virginia Printing Company, a company I started where I print shirts, apparel, and promotional products AND recently my wife and I started a Health Coaching business (Optimal Health Pro) where we coach and help people lose weight for life. As we raise our income to 6 figures we’ll continue to live off of $2,000 and save the rest which will make buying a house 100% cash down so much easier and faster.
Anyway, our way isn’t for everyone but it ROCKS for us. You can modify this approach to fit your needs — but be careful — us humans have a way of justifying stuff in order to not have to sacrifice as much, but it also takes us longer to achieve debt freedom because of it.
I like to compare my debt free journey to pulling off a band aid. GET IT OVER WITH and RIP IT OFF! Forget about the slow and painless approach — IT TAKES TOO LONG! haha! :D
Hope this helps.
Brad Chaffee founded the blog Enemy of Debt where he has enthusiastically shared his debt free message since 2008. Brad also uses his passion for helping others as a Certified Health Coach where he coaches and supports his clients to optimal health for life. Debt freedom has given him the chance to live the life he wants where work isn’t work at all and family time is cherished and enjoyed daily. Connect with him on twitter @brad_chaffee.
(Photo by mlinksva)