How to Get Out of Debt, Stay Out of Debt, and Live Prosperously

Wow, I wish I’d seen that book when I was starting out, although I probably would have avoided it at the time.

I’m surprised that more isn’t generally made of the first step–not taking on new debt. For me, that was the biggest and most important step I took, as it was the largest change in my lifestyle. Once I conquered the mindset of “Well, I just need to charge THIS, and then I’ll focus on paying it all off” it was much much MUCH easier to start to do all the other stuff (i.e. snowballing, making frugal choices, etc.).

I actually spent probably 4-6 months just working at not adding to my debt before I was ready to begin any of the other steps, but spending that time to permanently change the behavior was well worth it. When I had the spending part under control, it made the paying off part so much easier.

unless you modify your behavior and habits, nothing will improve for the long haul. This book is great for a person looking for change.

We’re definitely problem debtors.

I will have to pick this book up from the library.

While affirmations may seem silly to some people, they really work! 4 natural childbirths is all the proof I need.

I like to see books that pre-date Ramsey that have similar concepts. So many people believe Ramsey went to the top of Mt. Visa and had the four baby steps inscribed on stone tablets and came back with completely original and revolutionary ideas. I think he has just put the material in a more effective package and markets it better than anyone else.

The idea of behavior, rather than knowledge, helping improve finances is absolutely true. Should I spend more than I make? That’s a no brainer….Why do we do it, well that’s a lot more complicated.

I don’t like debt in general, but I do have a credit card and I pay the balance in full each month. I use it sparingly, and I don’t believe that I spend more by having it than if I exclusively spent cash. It saves me from having to physically go to the bank or an ATM to withdraw cash. It also saves me on ATM fees if those were to apply and I needed cash on the spot.

I think the aversion to credit cards is necessary for those who struggle to control their spending. If you’re spending less than you earn, and putting some of that on a credit card, I think that’s okay, too. It depends entirely on the individual.

“Though Mundis pre-dates Dave Ramsey by 15 years, he offers similar advice for tackling debt.”

This seems to be a theme among personal finance books. I feel like I’ve now read the same review for about twenty different personal finance books. They all say debt is bad, and you should stop accumulating it, then pay it back. They also say saving is good, and you should do that instead. Most of them also mention mental tricks for doing this.

It amazes me that this survives as a genre. You might as well have a fiction genre about sea captains who sink their ships in vengeful pursuit of white whales. Yeah, of course they’d all be compared to Moby Dick, because they’d all be basically the same story. I wouldn’t buy each new one that comes out thinking, “maybe the captain will live this time!”

Barb1954,

Barb, thank you….I will actually drive the car as long as I am able to.

It is a 2000 Saturn SL with 124,000 miles on it. (A lot of driving the kids around.) I thought two years was pushing it, but will gladly drive it to the day I die if it were possible. Cars don’t mean that much to me…I just need to get to where I am going (safely, of course).

The problem that I have found in financial dealings with my own kids, for example, is that they have already been brainwashed by credit card companies. We all know about the tables set up by credit card company reps on campus, for example, to snare these kids before they even start out in life. I try to relate my own bad financial experiences with some of the financial things that my own kids are seeing and doing but, honestly, sometimes I feel that I’m swimming against a too-strong tide. I’m realizing more and more that a person has to “live it to learn it” because I am no match for an unethical financial industry geared up to issue credit cards to impressionable kids who don’t even have a job yet!! I’ve given my kids the books to read and I offer financial advice whether or not it’s something they want to hear. I think I’ve made something of an impression (I hope) because my kids can see now just how I feel about debt and the way it can eat you up. Financial literacy is not encouraged in the western culture for the very reason that the financial industry doesn’t want it to be.

Moneyblogga,

I so hear you on this. My kids started getting credit card offers in the mail shortly before they turned 18. I used them as “teaching tools”. I showed them what to look for, how to read the fine print and how to interpret what was really being offered to them. I try to show them how the bad decisions we have made have affected our lives. I try to set examples by striving to do the right thing going forward and talking about it. I was furious when National City Bank came to the McDonald’s that my daughter was working at and signed her up for a checking account and everything without my knowledge. Yes, she was 18 years old and old enough to make her own decision. But I felt it was predatory and underhanded. Then, as you said, they get to college and these companies are all over the campuses trying to “reel” them in.

I do my best to educate my kids on this topic, and I feel strongly that more should be taught in our schools about financial responsibility and investing. (Senior year of highschool would be ideal).

JD: I think this would make a great future topic!

@Chett (I tried to contact you directly, but couldn’t find a way to email you from your own website) — Not quite sure if you’re being serious or sarcastic. If you’re being serious, thanks, I try to contribute constructively. If you’re being sarcastic, I know I can be critical, but I try to do it in a constructive way to encourage thought and discussion, not simply to be insulting, and I’m sorry if I ever come across that way (I know I have at certain times in the past).

I *loved* this book! I bought what I think was a new(ish) edition from Amazon (before I switched to public-library-as-bookstore). Great read, SO helpful.

Marie:
This is, unfortunately, not a debt issue so much as a product of our health insurance system in America. Until it is radically changed this is how it will always be.

Adam,

I hear what you are saying, and kids do need that foundation to be effective at anything. But otherwise intelligent people are taken advantage of on a daily basis by paid professionals in marketing and advertising. I am not saying these people are smarter than us, just masters of illusion, or wolves that pray on people’s weaknesses.

These young people are struggling with peer pressure, finding their own identity and learning to recognize the difference between wants and needs. Some are spending their first year away from home, possibly juggling studies and a part time job, and doing things for themselves that we take for granted. Sending a pack of wolves after them at one of the most vulnerable points in their lives is not helpful.

Just a comment based on Teresa mentioning wants vs. needs (it could have been anyone else to bring it up, I’ve thought about this for a while now):

I’m not sure why we make this distinction. We almost always classify certain things as “needs” when they’re really just “wants”, albeit wants that are socially expected norms in our society.

Here’s a hypothetical set of “needs” for an American family of four:
1) A two bedroom apartment.
2) A car.
3) Telephone service.
4) Electricity.
5) Running water that’s safe to drink.
6) Three meals a day for everyone.
7) Health insurance.

That would be a pretty sparse set of “needs” for most GRS readers. It would be really easy to add a third bedroom, a second car, and new clothes every year on that and still count them as needs. People *always* seem to classify their mortgage payment as a “need”, regardless of how luxurious their house is, the whole mortgage falls into the “need” category.

Even still, the sparse list above would be a life of luxury for most of the world. Most of the world doesn’t have a car, or health insurance, much of the world lives without clean water, or three meals a day, or electricity in their homes. Yet these people survive, and many of them are even happy. So why do we, sitting here comfortably in the first world, get to classify these other people’s luxuries as our basic necessities?

I think there are only “wants”. There are “wants that my neighbors will think are needs” and there are “wants that my neighbors will think are frivolous”.

You can really survive on very, very little, everything else is a “want”. This doesn’t mean you shouldn’t spend you money on those wants, just that you should recognize that you could choose to live without them.

I have an old cassette tape set from Ron Blue which dates back to the 80′s I found this to be excellent. Ron Blue is a minister and alot of his talk has religion in it however, there is alot to be gained from this book. The book was an audio book called Living Debt Free. If anyone can find the book in a thrift shop or pick up the cassette tapes if you still happen to have something like that around it is well worth listening to. He goes in to how people will rationalize debt, even very smart educated and religious people, they also give out this type of advice for others to borrow money. So math has little to do with with our thinking about money. It has everything to do with how we let money run our lives instead of controlling our own lives. That is how I felt, I felt that money controlled me, because I never had any and always worried about how I was going to ever pay my bills or get ahead, ect… I quite letting money control my life by making sane decisions that are realistic, and not following the crowd or even smart peoples advice.

Tyler, you are spot on. I’ve found out recently just how little I live on and I found it really liberating. Now it feels like my choice instead of being controlled.

The number one thing I found which started causing debt for me was to switch over and use a credit card for all of my purchases. The idea was to do so for the consumer protection the card offers, then I’d pay off the credit card bill when it showed up. Initially this worked, but after a while, I started getting into debt.

The reason?

It’s because using a credit card disassociates your spending from how much money you actually have to spend.

So, I ditched the credit card and went back to just using my debit card with a daily reminder of how much balance I have left in the bank. As I spend, I can visually see how much money I have left. The only problem with this is stores that delay when they withdraw the money. Some will post a $1 withdrawal until they’re weekly transactions are ran.

The other thing that helped was to do the common advice of paying myself first. Before I even see my paycheck 10% of it goes into my 401k (stock diversified). When I do get paid, $200 is auto-drafted from my checking account each pay-check … $100 to a money market for long-term purchases that require continual savings (like a car), and $100 to a personal investment account I can dabble with as I see fit according to the market (where-as my 401k I just do dollar-cost averaging on).

With that taken out of my checking account before I even see it, I’m ensured I have a cushion to fall back on as needed, but also ensure I don’t over-spend my means. If I get too much saved up in checking, I then manually distribute it to other investments.

So far, it’s worked very well. Credit cards are nice for emergency spending and consumer protection, but if you can’t control your spending you need to just get rid of them. I personally only have one, and only use it for large purchases I know I’ll cover next time the bill comes. (EG: I bought a 150cc motor scooter for daily commuting, and put it on my credit card for consumer protection, then paid it off on the next credit card bill I got out of my long-term purchase money market savings account.)

@Linear Girl – “Sometimes our needs really do vary by the requirments of the dominant culture; setting the poorest parts of the world as the standard is disingenuous.”

Yes, but using the richest parts of the world as the standard creates a picture which is just as skewed.

A few reality checks:

- Across the planet, only 13% of individuals own their own personal motor vehicle.
- 92% of people outside America (which has, by far, the highest rate of personal vehicle ownership rate on the planet, and props the global figure up), do not own their personal vehicle.
- USD$3,500/year is the average amount of money that an inhabitant of our planet lives on – which is readily apparent when you look at the type of dwelling they live in, the amount of energy they consume, how they get around, how they eat, etc.

You are right, we should not compare ourselves to the poorest people on the planet, but also when you look at the figures, the standard of living enjoyed by people in N. America (and Europe, Japan, etc.) is NOT NORMAL. The average standard of living – which is daily reality for literally billions of people who we share the planet with – is actually in between the poorest and the richest.

@Tyler Karaszewski 11 “It amazes me that this survives as a genre. You might as well have a fiction genre about sea captains who sink their ships in vengeful pursuit of white whales. ”
LOL – this is so cool.

@moneyblogga, TeresaA:
30 years in the US and I still don’t understand this about Americans – how they like to blame peer pressure or evil advertisers or anybody else but themselves.

I grew up in the Soviet Union, we haven’t had any financial education, my parents got their salary in ruble bills… We haven’t even seen a check before we got to the US.

But when I got my first credit card in the US, I’ve never thought of the credit line as spending money. I’ve never even read the fine print – I simply looked at the interest rate, and I knew that if I can’t pay my balance in full, I’ll have to pay a lot more. This was one of the things that my parents taught me – to think about the bottom line.

My parents haven’t taught me about credit cards. What they taught me was a) borrowed money aren’t really mine: if I borrow money, no matter how much and no matter from whom I ALWAYS have to pay it back b) the value of money. My parents were never afraid to tell me when I was a little child that they cannot buy me this toy or that because it was expensive and because my mommy had to work X hours to earn it or that this toy cost as much as this other thing and that other thing. My parents were never shy in discussing money in front of me. I also had an idea of how much they would spend on what I wanted. I also learned to think about cost of different things in terms of how much a particular item was worth: e.g. a dress would be worth more than a toy, a winter coat, more than a dress, etc. I learned that if my parents normally spent $X for my dress, they will not buy me a dress that cost considerably more. This habit of having an idea how much I am willing to pay for something even before I check the price tag stayed with me forever.

As to peer pressure – the first time I told my parents that I did something because everyone else did it, they asked me “and if everyone else were to beat their heads against the wall, will you do it too?”. They also weren’t afraid to say that they couldn’t afford to buy me something someone else had or if they thought buying the same thing for that much money was stupid.

As to “I want”, my mother always told me – “please feel free to go on wanting. Have I ever forbidden you to want something?” (sounded better in Russian, btw). Translation – you can dream about whatever you want, but this doesn’t mean you can get it.

They taught me to appreciate the value of money and to think of any amount of money in terms of what else this amount of money can buy me. I still do it; I also find that my perception of what is “cheap” and what is “expensive” changed very little since 20 years ago, yet I can afford now a whole lot more.

When I was in grad school, I saved half of my teaching assistantship. I didn’t even try – the money were simply worth more to me than a number of things I could buy. I liked the money more. Now, I used the savings to go to Hawaii in summer – this was worth it for me. Items weren’t.

This is what you should teach your kids – the value of money. You should teach it long before they get in college. You should also teach them to always return their debts. A little math wouldn’t hurt either. As to advertising – explain to them very early on and every time you go to a store that people want to sell them stuff, but that doesn’t mean they should buy it. Also – that they can never get something for nothing.

When we were poor refugees, many of the refugee parents weren’t able to buy to their kids what their American friends in school could buy. Yet, all immigrant kids learned to deal with it.

@Adam ” Adam says: “Teaching children about finances is not nearly as important nor productive as critical thinking in general. Raise them to analyze situations and ask intelligent questions and they’ll be much better off in life.”

True. As well as plain common sense.

@ Bob Smiley says: “It’s because using a credit card disassociates your spending from how much money you actually have to spend.”
True. What anybody who wants to use a card should be able to do is think about the price of an item they want to buy in terms of dollars and cents (and in terms of what else the same amount of money can buy) without thinking about the card in their pocket. You also need to think about a credit card bill the same way you think about any other bill, e.g. a telephone bill. If you cannot do it – don’t use cards.

J.D. Thought you would like to know that I used your article for a reaction paper in my Human Services class. I look forward to reading this book and hope it will help combine the touchy-feelyness of the class with finance. I will send you a copy if you like but it is short and of questionable quality.

Nice, hadn’t heard of this book yet. I agree that a very important point is both how to STAY out of debt, but also, in the first place, how to just not take on any more debt. It’s really important to establish that plateau in order to make the foundation for being able to stay out of debt and not just yo-yo diet on your credit cards.

Frugal Bachelor – I agree. If I had suggested that we use the unsustainable standard of living from the richest parts of the world as the norm I would also be skewing the data. But I didn’t suggest that at all. I just wanted to point out that some things being dismissed as mere wants are actual needs if you live in this country.

The world is headed toward a more even distribution of wealth, geographically, even as we see that wealth becoming more concentrated in the hands of the wealthiest. If Americans want WalMart pricing, the cost to us will be the erosion of our standard of living as we raise the standard in other parts of the world. Since the geographic redistribution of wealth strikes American as socialism we can’t even discuss this rationally in our country. We can’t even recognize in the public sphere that this might be a good thing for world civilization.

The discussion of the concentration of wealth into fewer and fewer hands is a discussion for another day.

If Mr. Mundis is reading all of the comments, THANK YOU. This book is what put me over the edge, solidifying my getting out of debt process. I just counted my personal finance books. I have 105. I’m thinking I’ve read maybe about 140 personal finance books or so. This book is definitely one of the top three i recommend to people and it’s the only one I’ll mention if the person does not usually read books. Approaching money from a behavioral standpoint work. Thanks again. This work is greatly appreciated.

I read this book years ago after finding it in the library. I thought it was wonderful except for one niggling detail. Years later, I saw a copy of it at a good friend’s house, and I asked her what she thought of it. She responded that it was an excellent book and its philosophy was extremely helpful, and that her only complaint about it was that she found it grating that the author used the word “debt” as a verb. I started to laugh, because that had been the exact same niggling detail that had irritated me (to the point that I remembered it years later).

Lovely book.

The other day I heard a story about a homeless man that won 5 million dollars. Three years later he was homeless again. It’s hard to change, financial success begins in your mind. It doesn’t matter what type of money you make.