How to get out of debt (without gimmicks or games)

As part of back to basics month, let’s use today to explore how you can get out of debt without gimmicks or games.

After twelve years of reading and writing about money, I’ve come to believe that debt reduction ought to be a side effect and not a goal. Getting out of debt is a target, not a habit. And, as we’ve been discussing recently, good goals are built around actions instead of numbers. If you restructure your life so that you’re spending less than you earn, you will get out of debt. It’s a natural side effect.

Having said that, I realize that a lot of GRS readers are struggling to get to square one. Getting out of debt is their goal and primary obsession. That’s okay.

Before you can begin repaying your debt, you must be earning a profit. Unless your income exceeds your expenses, your debt is actually increasing. If you’re continuing to add debt, or if you’re only able to make minimum payments, you must first find ways to spend less and earn more until you have a positive “saving rate”. (Both businesses and people earn profits. But when individuals earn a personal profit, we call it “savings”.)

After you’re earning a personal profit, you can (and should) make debt elimination a priority.

Why You Should Pay Off Your Debt

Debt repayment can improve your credit score, meaning you’ll pay less on everything from rent to car insurance to future borrowing needs. Plus, debt reduction is one of the best returns you can earn on your money.

Investing in the stock market provides an average annual return of about 10% — but that return isn’t guaranteed. Some years the market is up 30%, but other years it drops by 40%. When you pay down a credit card, you earn a guaranteed return of 20% (or whatever your interest rate is). That’s tough to beat.

There are also non-financial benefits to paying off debt, including:

  • Simplicity. The more debt you have, the more bills you have. It’s easier to manage your money when you have a simple, efficient financial infrastructure. Each time you pay off a debt, you move one step closer to this ideal.
  • Cash flow. Whenever you eliminate a debt, the money formerly used for that monthly payment becomes available to pursue other goals – including fun stuff like ski trips and knitting supplies.
  • Freedom. When you have monthly payments to meet, you’re chained to your job. You’re unable to take risks. Once your debt is gone, a wider range of options becomes available to you.
  • Peace of mind. Best of all, once you’re debt-free, you can sleep easier at night. You’ll put less pressure on yourself, and you’ll have fewer fights about money with your partner.

When I first tried to get out of debt, I lacked a system. Without a plan, I sent extra money to one credit card and then another. As a result, I never seemed to make any progress.

After deciding to become boss of my own life, however, I researched how to get out of debt. Many books recommended a strategy called the “debt snowball”. Although I was skeptical, I gave it a try. The method worked. Using it, I managed to eliminate my debt and begin saving for the future.

Stop Acquiring New Debt

This may seem self-evident, but the reason your debt is out of control is that you keep adding to it. Stop using credit. Don’t finance anything. Cut up your credit cards.

That last one can be tough. Don’t make excuses. I don’t care that other personal finance sites say that you shouldn’t cut them up. Destroy them. Stop rationalizing that you need them.

  • You don’t need credit cards for a safety net.
  • You don’t need credit cards for convenience.
  • You don’t need credit cards for cash-back bonuses.

You don’t need credit cards at all. If you’re in debt, credit cards are a trap. They only put you deeper in debt. Later, when your debts are gone and your finances are under control, maybe then you can get a credit card. (I don’t carry a personal credit card. I don’t miss having one.)

After you destroy your cards, halt any recurring payments. If you have a gym membership, cancel it. If you automatically renew your World of Warcraft account, cancel it. Cancel anything that automatically charges your credit card. Stop using credit.

Once you’ve done this, call each credit card company in turn. Do not cancel your credit cards (except for those with a zero balance). Instead, ask for a better deal. Find a low interest credit offer online and use it as a bargaining wedge. Your bank may not agree to match competing offers, but it probably will. It never hurts to ask.

Establish an Emergency Fund

For some, this is counter-intuitive. Why save for an emergency fund before paying off debt? Because if you don’t save first, you’re not going to be able to cope with unexpected expenses. Do not tell yourself that you can keep a credit card for emergencies. Destroy your credit cards; save cash for emergencies.

How much should you save? Ideally, you’d save $1,000 to start. (College students may be able to get by with $500.) This money is for emergencies only. It is not for beer. It is not for shoes. It is not for the latest Playstation. It is to be used when your car dies, or when you break your arm in a touch football game.

Keep this money liquid, but not immediately accessible. Don’t tie your emergency fund to a debit card. Don’t sabotage your efforts by making it easy to spend the money on non-essentials. Consider opening an online savings account. When an emergency arises, you can easily transfer the money to your regular checking account. It’ll be there when you need it, but you won’t be able to spend it spontaneously.

How to get out of debt without gimmicks or games

The Debt Snowball

With the debt snowball, you set aside a specific amount of cash each month to pay off the money you owe. At first, progress is slow. In time, however, you begin to make rapid progress, picking up speed like a snowball rolling downhill.

Step One

The first step is to make a list of your debts. For each obligation, include the balance you owe, the interest rate, and the minimum payment. Arrange the list so that the debt with the highest interest rate is on top. Next comes the debt with the second-highest interest rate, and so on, until you reach the final debt on the list, which will be the one with the lowest interest rate.

For instance, here’s the actual list of my debts from October 2004, ordered by interest rate:

  • Computer Loan: $1116 @ 15% ($48 min)
  • Business Loan $2800 @ 11% ($30 min)
  • Home Equity Loan $21000 @ 6% ($100 min)
  • Car Loan $2250 @ 5% ($170 min)
  • Personal Loan $1600 @ 3% ($100 min)
  • Personal Loan $6430 @ 0% ($60 min)

I had $35,196 in debt and my minimum payments totaled $508 per month.

Step Two

Once you’ve listed your debts, decide how much you can afford to pay toward them each month in total. This should be at least the total of your minimum payments ($508 in the example above), and preferably more. In my case, I started by allocating $700 every month toward debt reduction.

Step Three

Now, for all of your debts except the debt with the highest interest rate, make minimum payments every month. Use the rest of the money you’ve allocated for debt reduction to pay down the debt with the highest interest rate.

The computer loan topped my list of debts with an interest rate of 15%. The minimum payments for the other debts combined to $460 per month. Under this plan, I’d then take the remainder of the $700 I’d allocated toward monthly debt reduction and apply it to the computer loan. Instead of making the $48 minimum payment, I’d pay $240.

Step Four

Repeat this process every month until the debt at the top of the list has been eliminated.

Step Five

Here’s where this method gets powerful. With your first debt defeated, you don’t use your improved cash flow to buy new things. Instead, you use the extra cash to attack the next debt on your list.

If I start by applying $700 toward debt each month, for example, I continue to apply $700 toward debt each month until all of the debt is gone. After the computer loan is retired, I focus on the business loan. Because the minimum payment on my other debts would be $430, I could funnel $270 to pay off the business debt every month.

When the business debt is gone, I’d then throw $370 per month at the home equity loan, and so on. Ultimately, I’d be left with a single loan: the $6430 personal loan at 0% interest. Every month, I’d apply all $700 to get rid of this debt.

Pros and Cons

The debt snowball is powerful and effective. Mathematically, it’s the best way to get rid of your debt. There’s just one problem.

When you attack your debts from highest interest rate to lowest, you’ll pay less money in the long run. Unfortunately, many folks – including me – find the going difficult. In my case, I hit a wall when I reached the third debt on the list, my home equity loan. That $21,000 balance was going to take years to repay. I didn’t have that kind of patience.

Fortunately, I learned there were other ways to order your debts. You don’t have to tackle the high interest rates first.

Snowball

Building a Better Snowball

Humans are complex psychological creatures. They’re not adding machines. Many of us know what we ought to do but find it difficult to actually make the best choices. (If we were adding machines, we wouldn’t accumulate consumer debt in the first place!) It’s misguided to tell somebody so deep in debt that they must follow the repayment plan that minimizes interest payments. The important thing to do is to set up a system of positive reinforcement.

Because of this, many people prefer slight variations on the debt snowball method. These methods ignore math in favor of psychology.

Dave Ramsey’s Debt Snowball

Financial guru Dave Ramsey has popularized one variation of the debt snowball. Instead of ordering your debts by interest rate, he suggests you attack those with the lowest balances first.

Using Ramsey’s method, my debts from 2004 would be ordered like this:

  • Computer Loan: $1116 @ 15% ($48 min)
  • Personal Loan $1600 @ 3% ($100 min)
  • Car Loan $2250 @ 5% ($170 min)
  • Business Loan $2800 @ 11% ($30 min)
  • Personal Loan $6430 @ 0% ($60 min)
  • Home Equity Loan $21000 @ 6% ($100 min)

As with the standard debt snowball method, I’d make minimum payments on each debt except the top one on the list. At it, I’d throw everything else I’ve allocated for debt reduction each month. When the top debt was eliminated, I’d move on to the one with the next smallest balance.

Ramsey’s variation isn’t as quick as paying high-interest debt first, and in the long-run, you’ll lose slightly more to interest payments. (In my own case, the projections showed it’d take an extra month to repay my debt and I’d pay and extra $841.15 in interest.) However, there’s a psychological advantage to doing things this way.

By attacking your smallest debts first, you get some quick wins, which provide a mental boost. This psychological lift provides extra motivation to keep attacking that debt. Every few months, you get the satisfaction of crossing another debt off the list! Ramsey says this is “behavior modification over math”, and he’s right. In fact, I opted to use this variation of the debt snowball when I repaid my own $35,000 of debt in 39 months.

Adam Baker’s Debt Tsunami

Other experts, including my buddy Adam Baker from Man vs. Debt, suggest yet a third alternative they call the debt tsunami. They argue it’s best to pay off your debts in order of their emotional impact. Attack your debts from smallest balance to highest, they say, but for added psychological boost, prioritize any debt that particularly bugs you.

“I used to be addicted to gambling,” Baker says, “and I had debt that was specifically associated with gambling. To pay that off first changed me as a person. To pay off the $600 I owed on a credit card was great, but it didn’t change me. It didn’t signify that my life was going to be different and that I was going to live in a different way.”

But paying off his gambling debt did mean something to him, so Baker attacked that first.

Here’s another example: Many people borrow money from their parents. These loans may carry interest rates of only two or three percent (or maybe they’re interest free), but they come with a lot of psychological baggage. This is another instance where it might make sense to pay down low-interest debt first because the non-financial rewards are so great.

The most important thing when paying off your debts is to pay off your debts; the order in which you do so is ultimately irrelevant. Find a system that works for you and develop the discipline to stick with it.

Note: It’s less imperative to repay low-interest debt. Businesses use “leverage” to borrow money cheaply so that they can earn higher returns elsewhere. You do the same when taking out a mortgage at low rate (like three percent) or using school loans to improve your education (which will, in theory, provide high future returns). It’s good to repay all of your debt, of course, but it’s okay to make repaying the mortgage a long-term goal instead of lumping it in with your debt snowball.

Supplementary Solutions

You can do other things to improve your money situation while you’re working on these three steps.

First, focus on the fundamental personal finance equation: to pay off debt, or to save money, or to accumulate wealth, you must spend less than you earn.

Curb your spending. Re-learn frugal habits. (Frugality is something with which most college students are all too familiar.) You can find some great ideas in the archives of this site. Also check Frugal for Life.

While you work to spend less, do what you can to increase your income. If possible, sell some of the stuff you bought when you got into debt. Get an extra job. (But don’t neglect your studies for the sake of earning more. Your studies are most important.)

Finally, go to your local public library and borrow Dave Ramsey’s The Total Money Makeover. Don’t be put off by the title — this is a fantastic guide to getting out of debt and developing good money habits. I rave about it often, but that’s because it has done so much to help my own personal finances. After you’ve finished, return it and borrow another book about money.

Simple, Not Easy

Human beings are complex creatures. Some of us are highly logical. Some of us are emotional. Most of us fall someplace in between. We rarely make decisions based on optimal paths; more often, we choose what makes us happy in the short term. I’m not saying that this is the right thing to do — it’s just what happens. For those who routinely make financial decisions based on emotion, it can be difficult to turn things around.

Complaining that personal finance is easy and “why doesn’t everyone do what they ought” is like saying that running a marathon is easy so why can’t everybody run one? Most of us understand how to prepare for a marathon — eat right and run a hell of a lot — but few of us have the dedication and mental fortitude to complete one. However, with a little discipline and some hard work, most people can complete a 10k race.

It’s the same with personal finance. It’s easy to say, “To build wealth, you must spend less than you earn”, but it’s another thing to do it, especially over the long term. In some ways, building wealth is more difficult than running a marathon. Training for and completing a marathon takes months. Dedicating yourself to a sensible financial plan is a lifetime process.

If personal finance were really as simple as understanding the math, we would all be rich. But it’s not. And we’re not. That’s why I think any small financial victory is important. That’s why I run this website, and why I share whatever tips I can find.

I always say “do what works for you”“. Some people are able to succeed by paying high-interest debt first. But some people — myself included — have only been able to succeed by trying another approach. The approach may not be best from a mathematical viewpoint, but I believe that any method that actually helps you meet your goals is better than one that doesn’t.

Personal finance concepts might be simple, but that doesn’t mean they’re easy. I don’t mean to imply that they are. It took a lot of hard work (and a little luck) for me to get out of debt. It didn’t happen quickly, and it wasn’t easy.

The Bottom Line

As I mentioned at the start, I’ve come to believe that debt repayment is a side effect and not a goal. You shouldn’t make it your primary purpose.

If you do the other things I recommend, such as creating a personal mission statement and boosting your profit margin, you’ll naturally pay off debt as a matter of course. But you’ll enjoy a benefit many people don’t have once their debts are gone.

You see, a lot of people feel lost once they’ve dug out of debt. Search online and you’ll find tons of questions and conversations about what to do next. Debt repayment had given them purpose, and now that purpose is gone. As a result, they lose financial direction. And like a dieter who had aimed for a weight instead of a lifestyle change, an unfortunate few of the newly debt-free find themselves resuming bad habits.

If you’re pursuing other goals and intentionally building good habits, you’ll get out of debt. And once you get out of debt, the good times will continue: That debt snowball you’ve been building will transform itself into a wealth snowball.

Congratulations! You’re on your way to financial freedom!

Have you ever had to dig out of debt? What methods did you use? Were some more successful than others? If you had to do it over again, would you have done anything differently? What advice would you give to others who have just taken on the role of money boss in their lives?

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There are 348 comments to "How to get out of debt (without gimmicks or games)".

  1. Somebody says 16 November 2006 at 06:20

    I did cut up my credit cards years ago, and got in a bit of a jam when I tried to rent a car. Car rental companies will only reserve cars with credit cards, not debit cards or cash. Once you’ve returned the card, the fee can be paid with debit or cash, and nothing is charged on the credit card.

    • Deb says 02 November 2011 at 10:08

      That’s the only reason why I have a cc … to be able to rent a car when I need to. Other than that, my balance is always zero.

      • Matt says 26 October 2013 at 10:33

        Deb,

        That is a great example of using credit cards wisely to enhance your credit rating.

    • Ryan says 29 February 2012 at 14:51

      I use my debit card for car rentals all the time. As long as it’s a Visa or Mastercard debit card, they’ll preemptively charge your card, and the charges will augment after you return the car. Works for me every time.

    • Brian says 15 April 2012 at 15:13

      I say baloney on that! I’ve rented cars with a DEBIT card this past February 29th after my Mercedes was totaled. So that’s BS, you most certainly can rent a car with a debit card…Visa is Visa my friends.

      • MOLLY says 16 April 2012 at 05:16

        why so hostile,let’s be civil

      • Clay R says 22 April 2012 at 21:49

        ACTUALLY the previous poster is absolutely right, Budget is one will NOT accept a debit card under any circumstance. That happens to be the only rental place within an hour drive of the town I live in..

    • Jon Smith says 24 April 2012 at 09:06

      I’ve got to say that I think the debt snowball is an odd way of going about it. Debt is not necessarily inherently toxic, as you can invest in products with better interest than some debts have. If you’ve got a terrible deal on a big debt, though, you should pay that off fast imho, not take out smaller debts first.

      EDIT: Oops, this wasn’t supposed to be a reply. Can a Mod move this?

    • Gal says 09 February 2014 at 03:57

      Credit card or not, for me using shopping list is a significant part of saving. I am using a list on my phone which is always with me and also automatically sync with the rest of my family. I use https://play.google.com/store/apps/details?id=com.gal.appshoppinglist

    • Doe rae me says 19 February 2014 at 12:12

      Yes, it depends on the company policy if you can rent a car with a credit card or not. I don’t recommend cutting up credit cards, I only found this site after getting out of credit card debt. I recommend finding the highest positive ratio of debt and attacking it first: Take the total debt and divide it by the minimum payment for all debt, the highest number is the debt to pay off first and yields the most benefit. It will give the quickest payoff with more minimum payments going to other debt sooner.

      • Doe rae me says 20 February 2014 at 12:14

        My bad, it’s been a while. The above method would give the LOWEST number to attack first. Example: 2 credit cards, one with 400 balance and 15 minimum payment and one with 500 balance and 25 minimum payment. If you have 100 extra to attack debt, paying off the 400 credit card first then the 500 would take 8.34 months (without interest/finance charges). Attacking the LOWEST ratio (the 500 first then the 400) would take 8.2 months (without interest). Having the extra 25 to apply to other debt works faster. It also curves the temptation to use that credit card, knowing that the minimum payment will hurt you more.

  2. William Mize says 16 November 2006 at 06:44

    I’d like to elaborate on the “Sell Some of Your Stuff” advice – I’ve had really good luck selling used books and CD’s on amazon.com. They make it dead easy, and even reimburse you for Media Mail shipping.
    Now granted, you may end up getting $5 on a $20 book, but for me it’s about getting rid of ‘stuff’ and having some cash flow into my life, as opposed to out of my life.
    That $5 can go into this person’s emergency fund or into his wallet, keeping him from the ATM for a while longer.

  3. Him says 16 November 2006 at 06:46

    “or when you break your arm in a touch football game”

    That’s one helluva game of touch football!

    Great write up. I think that many forget about step #1, even though it is faily obvious.

  4. Gwyn says 16 November 2006 at 12:27

    I keep and use a credit card for almost all of my day to day purchases. The reasons why this is a good idea for me are:

    1. it’s free. I don’t pay any interest because I pay it off in full every month. In fact I actually maintain a small credit balance most of the time so they actually pay me a few cents interest every month. And you thought irony was something that happened to other people.

    2. it’s free. I don’t pay a monthly fee for transactions. The debit card I get from my bank has a limit of 30 transactions per month, past that they charge 50c a transaction. This all adds up! I pay a yearly fee for the card but it works out to about $1.50. Compared to the debit card I think I’m ahead.

    3. They pay me! We don’t actually have reward cards and cash back cards in New Zealand, but we do get points that you can use to buy stuff with. When you use the card for absolutely everything, they add up.

    4. I have a really low limit. I have a $500 limit on my card, even if I wanted to , I couldn’t get into trouble with this card. Whenever I hear about people with ‘000s of dollars on their cards, I just boggle.

    I’m not saying this is the best idea for everyone, especially if you are trying to recover from debt, but once you have credit cards can be useful. You have to keep control of them.

    • Steven Williams says 03 May 2011 at 05:13

      Shop around for other offers from other banks. My debit card has a $10,000 daily limit.

      It also had a very good rewards program that they just canceled because the businesses owners got upset with higher merchant account fees to pay the rewards.

      Credit card companies have good reward card programs because they charge you interest on the charges you make. In essence they are paying you with your own money.

      I’m not totally against credit cards but I just don’t have them anymore personally.

    • Joe 6 says 03 January 2012 at 13:55

      While you’re right that it is free to you since you pay off the balance each month, please realize you are still feeding the system. The banks make money by charging the merchant 2 to 5% as a fee when you swipe your card. This is money draining out of your local community and going into the coffers of the big banks. Keep the money local: use cash!

      • date eater says 28 December 2012 at 23:55

        The stores accept cards despite the fees because they will make more in sales. People are more likely to buy more if the store takes cards. If everyone paid in cash, the stores wouldn’t be earning as much.

  5. Student Loan Consolidation Advice says 16 November 2006 at 13:56

    You could consolidate your loans – http://www.StudentLoanConsolidator.com offers both federal and private student loan consolidation. However, an even better idea would be to sign up for their affiliate program and help all your friends consolidate their student loans. For each friend who consolidates, you get $100. Get just 10 of your firends to consolidate and you have $1,000 to pay off your student loans – or spend elsewhere.

  6. Jeremy says 16 November 2006 at 16:59

    This is excellent advice. Interestingly enough, I am already applying this method to my own debt.

    I left work a few years ago to go back to school so I could get into a job I really wanted. Unfortunately, that meant being very dumb and living off credit cards. I would not have needed to do this, but I was accustomed to a particular lifestyle that I did not modify for being unemployed, retarded I know. Let’s just say i wasn’t an econ major. 😉

    Anyways, so here I am years later, and I have lots of high-interest, five-figure debt. Yay me! I knew it was time to put my education on hold and go back to work. So I have been limiting my expenditures, paying off debt as outlined here and I just started a savings account.

    What I basically do is take 10% of my wifes check, and mine, and xfer that to a savings account, no questions asked; it’s as if it doesn’t exist. And, at the end of each week, I go through my online bank statement and look at what frivolous things I spent money on (video game, pub, dining out, etc), and I take 10% of that amount and place it into my savings.

    This has worked really well for me. I do need to work on curbing my spending even more to be truly lean, but these changes have truly made all the difference.

    Please get rid of you CC debt and NEVER, EVER, get debt again with a CC. They are scum taking advantage of people. If you need to put it on a CC, you don’t NEED it.

    • Sue J says 08 July 2012 at 20:04

      Please – do not say “retarded”. It’s one of those old terms that has to go – just like “the N word” .

      • RoC says 10 December 2013 at 13:03

        One of the dumbest replies I’ve read in quite a while…

      • Diana says 04 September 2014 at 10:02

        OT – thank you for your comment. People who use this word may not know it is offensive, but will likely stop using it if they’re told it is a slur against people with disabilities.

  7. Jeremy says 16 November 2006 at 17:12

    Oh. And for those that are unclear on the Debt Snowball, it is a great idea that totally makes sense once you put it into action.

    Example:
    You have 3 CC. a) $2000/$100mo, b) $2500/$120 c) $5000/$200.

    Pick a budget, an aggressive one, let’s say, $600 a month to pay towards CC debt. This is the MINIMUM you pay. Pay more when you can. And pick a card to focus on, we’ll choose card a.

    So, out of that $600, pay the minimum on cards b and c, and pay the remainder on card a. So, b gets $120, c gets $200. That leaves $280 for card a. Keep paying card a until it’s done. This is the beginning of the snowball.

    Then choose the next card to pay off, we’ll choose b. Add the $280 to the minimum you were paying for card b, that’s $380 you are paying to card b. You’ll pay it off ever faster than card a! Pay that off.

    Then, finish the giant snowball, and put all $600 towards the last card. Voila! This method really does work.

    I wold also add that while you are doing this, look for good deals on a new CC. One thing I did was when I paid off a card, I decided to use the CC to help instead of hurt me. I told them I wanted to cancel my card, but what I really wanted to do was manipulate them into wanting to keep me as a customer. So I told them I would keep their card if they lowered their APR AND transfer the balance of one of my higher interest cards. Boom! I just saved myself a lot of money and I was still able to close down a CC account.

    Anyways, good luck guys!

    • Sam says 28 July 2013 at 18:54

      Good advice especially if card A is the one with the highest interest rate of your 3 cards, and you do not use card A while paying it down.

  8. Chris Thomas says 20 November 2006 at 13:40

    Dave would be proud. Great post.

  9. Spam says 05 December 2006 at 21:45

    “Car rental companies will only reserve cars with credit cards, not debit cards or cash.”

    This is totally untrue. I have NO credit cards and have never had a problem renting a car with my Visa check card.

    • DonnieD says 20 September 2011 at 21:04

      I have! I had to deposit money into my paypal acct and use my paypal card to rent a car at the airport. Paypal is looked upon as a credit card at car rental companies, at least through my experience.

  10. Gordon says 11 December 2006 at 07:17

    I’ve recently (this week) launched a free website and forum where people can discuss debt and debt problems.

    Feel free to pay it a visit. Thanks.

    http://www.a-debt-solution.com

  11. Ryan says 25 January 2007 at 13:20

    Here is a great resource to read up on debt management and creating a budget with over 100 informational articles. http://www.careonecredit.com/Knowledge/debt-management.aspx

  12. Erek Ostrowski says 18 February 2007 at 18:37

    I really enjoyed this post and I think your advice is spot on. I’ve written my own Getting Out of Debt series with a couple other tricks that supplement yours nicely. Thanks for your great work!

    Erek

  13. MiserMan says 21 February 2007 at 19:32

    Here’s a simple pragmatic way to get out of debt – save your money and pay it down – stop spending it on all that crap that you don’t need. Even cable TV is really not absolutely necessary. You may only have to stop spending for a little while. http://www.stopspendingmoney.com has some good ideas. There’s even a blog. Take care out there!

  14. Debbie says 16 March 2007 at 16:16

    If you think you cannot get out of debt, try being over 500,000 in debt. These guys are doing it and so can you! http://www.joelmaxwell.com/

  15. Chris says 02 April 2007 at 14:35

    I don’t normally advocate the use of credit cards, but in some instances they are useful. For example, if your CC information is stolen, your CC company cannot hold you responsible for any unauthorized charges. However, if your debit card info is stolen, along with your PIN, you may be out of luck. At best, you’ll get your money back eventually (after a long waiting period), and at worst, you’ll be liable for everything.

    http://finance.yahoo.com/banking-budgeting/article/102730/credit-cards-offer-better-protections-than-debit-cards

  16. Michael says 17 April 2007 at 08:49

    The “snowball” does not recognize math should play into the equation. I have managed to get most of my debt down to 5% or less, but there are two cards with higher rates that won’t go lower. I am paying higher% before lower%.

    I understand that sometimes the psychology of paying a CC off in full is important, but not always. People need to start looking at the total INTEREST charges of all their debt each month, adding it up, and setting fire to a pile of $1 bill (fakes) to represent that money.

    It hurts!

    • date eater says 29 December 2012 at 00:07

      I agree, except that I really value cash flow. It’s important to free up more dollars sooner. So I will consider/weigh paying off something with a lower rate in order to free up more $ sooner that can go to paying the next item down.

      If I were to set up my snowball to pay off highest rate balances first, it would tie up my cash flow longer. If my highest interest rate item is also the biggest balance, I would be making minimum payments on everything for a long time.

      But if I can get some cash flow free right away, it gives me more options. For instance, a great investment opportunity could come along. I could put debt paydown on hold and use the free cash for the investment.

      So when you consider “real options”, paying off small balances can be mathematically sound.

  17. Stacy says 29 April 2007 at 17:46

    Okay I have a mess…..$21,000 in credit card debt, a home that where are buying $69,000, and a new car $10,000.00. Between my husband and I we make $2,500 a month! Yeah I know we are really in a big mess. We have cut up the cards and are just making it by with min. payments on the cards.

    Do you have any tips for us?

    • Diana says 04 September 2014 at 10:00

      You MUST increase your income. $2500 is not sustainable for doing anything beyond living expenses unless you’re living rent free, given your level of debt. If you have children, increasing work hours may require increased day care costs. Avoid creating that new expense by working opposite shifts or adding work during school hours only. You will have to give up your life for a while and only focus on debt payoff – it won’t be fun, but it will be worth it.

  18. Liz says 02 May 2007 at 20:57

    I found this site while looking for sites on getting out of debt, and it has been wonderful and helpful. I never thought of the idea of snowballing (?) my payments before, and just started on that recently. I have to say it is almost fun to see the balances on something reduce themselves even a tiny bit –

    I have a whopping amount of personal debt from being a student, and also being depressed for about four years.. it amassed quickly. But I seem to have finally found something that is working.

    My situation is this:
    $12,000 in student loan
    $23,000 in credit card debt
    $7500 in a line of credit
    $1000 I owe to my brother

    And what I’ve done is this:
    – Paid off the $2000 of my student loan that was with a different borrower
    – Moved $4000 from one credit card to another, leaving 17K on one, and 6K on the other: and when I called to make that balance transfer, they lowered my credit card interest rate to 11.5%; I will be making my next payments on my lower balance CC
    – Left my line of credit alone, increased that payment slightly so that eventually that will be paid off
    – I am paying my brother off with post-dated cheques, and that will be paid by November
    – I have $2000 in savings right now, and am just throwing $50 a week in that pot just in case.

    This leaves me with virtually no money at the end of the month to just have available, which I’m finding is a very good motivator: if the money is there I go shopping. I

    The other bits and pieces on this blog are wonderful as well – investing etc is a little ways away for me, but its fun to read and to think that I have that potential!

  19. venkat from chennai India says 19 May 2007 at 01:25

    Getrichslowly- an amazing website and accidentally i visited this site. The artilce by DJ on repaying loan is simply mind boggling as he just mirrored my mind 2 out of his 3 ways are already used by me and giving great results. The snowball is the new concept which i will try to put in use now. Thanks DJ.

  20. JohnK says 19 May 2007 at 11:22

    Debt by itself is not a bad thing, but is far too frequently abused. Many people would not be able to drive a car or live in a house if they did not incur a debt to purchase it.

    I agree that many people cannot manage debt well, just like many people cannot manage a diet well with chocolate cake in the house 🙂

    You don’t blame the cake for the diet problems and you don’t blame credit for credit problems. However, if you are too tempted to not stick to “the rules”, then manybe eliminating the problem from your life works for you. If so, I applaud your ability to never use credit.

    Just remember one thing: Well used credit can actually INCREASE your cash flow. How? My spouse needed a laptop so that she could work on her online college degree without others interrupting her on our only PC. I found a deal with Dell on a very good, very fast laptop that was interest free for 18 months. I have 4 more payments to make and paid no interest. This means, my savings is still making interest and I paid nothing else for the laptop.

    As long as you find intellegent ways to use “other people’s money”, you can still use credit and not pay for it.

    Once again, JD, another good article. Please, Please keep them coming!!!

  21. skinny says 24 May 2007 at 12:04

    I had a card @ 30% apr, minimum payment monthly was $45 but the finance charge was $38. So for every 45 I put on, my bill only went down 7.

    I’ve found the easiest way to judge which cc to pay off first is whichever one has the smallest difference between the monthly finance charge and the minimum payment amount. The greater that difference, the more your payment is actually paying down debt. The smaller that difference is, the more you’re just paying interest and will never pay it off. Throw huge chunks of money at those cards immediately!!! You’ll have a better percentage of your money actually paying off debt instead of interest. If you ever pay near the minimum on a high apr card, you’re wasting money right then and there and also, more of the high debt is sitting longer gathering more interest.

    Once you get the cards managed better, DON’T CLOSE THE ACCOUNT!!! Even if at zero, keep it open, even if you have to hide the card in old luggage or cut it up or something. The reason is that the percentage of available credit you have in combo with how long you’ve had the credit card open helps tremendously with your credit score and ability to get an important loan like a house. You should have a low percentage of unpaid debt vs credit availability. If you owe $500 left but have $10,000 available credit (credit card limits), that’ll give you a much better score than if you close one of those paid off cards and only have $5000 available credit. And try to stay below 1/3 credit used on any one card. The closer you are to the max on a card, the riskier it looks to the credit reporting agencies.

  22. ST says 02 June 2007 at 10:10

    Seems that this post is about putting “overcoming your faults” over good financial sense. If you cannot equate credit cards with cash, that’s your problem.

    If you think the advice here is good financially, it seems that you should go into therapy instead. Go into *more* debt in order to figure out how to live within your means by dealing with what’s making you act irrationally. A good friend of mine did that: therapy, then got a new job, then went to the bank and got a 6% loan to cover all her debts and paid off all her credit cards, starting with the highest interest (like any one with sense would do).

    If, on the other hand, you’re in debt because of extenuating circumstances or college is just too darn expensive, then do what all the books say. Make a budget, consolidate debt, use 0% offers, use the one credit card with a 0 balance as it is cheaper than cash. You’ll get out of debt years faster than with this tripe. Come on, that bit about the “lowest balance,” is just inane. Why not do a balance transfer?

  23. Barbara Saunders says 07 June 2007 at 14:00

    I find it fascinating that most “get out of debt” advice pieces skip the obvious. Some people simply need to make more money. I had some very bad credit problems years ago and did some soul-searching. I was spending beyond my means, yes, but I was also underearning at a level that was ridiculous. That is, spending within my means at the time would not have afforded me a decent place to live and groceries. I was paying dentist bills and replacing holey underwear with borrowed money.

    This is a self-esteem issue. I’m in a job now that I enjoy and took for a relatively low salary. An honest look at my future prospects has me looking for a position with a salary appropriate for my experience level. When I see coworkers their forties in my low-paying workplace going without cars and choosing which bills to pay each month, I am reminded that “being frugal” and the notion “living within one’s means” can veer into self-destructiveness.

  24. Hannes says 15 June 2007 at 01:23

    Again, a fantastic article. I am in a bit of a bind with debt, and I think by following your easy steps, I should be able to get out of this hole. Thanks.

  25. sasha says 16 June 2007 at 00:31

    OK some of these ideas are great but what if your trying to pay off debt and your making less than $15,000 a year and that is with two jobs no benefits and I am still looking for a full time job. I am finding it hard to manage my living expenses I haven’t even started paying my student loans I am working on paying my cc debt off. It is depressing. I am cheap too I use coupons to get stuff for free, freecycle on yahoo and still I have trouble making it.

    • D Trevino says 06 October 2012 at 12:59

      Unfortunately it is easy to by in your situation even if you earn more than $15,000 a year. You have to go back to basics no matter what you earn which means spending less than what you earn.

  26. Steve "The Debt Settlement Man" B says 16 June 2007 at 10:08

    I completely agree that credit cards are worthless and you don’t need them. They are stocked full of traps that will make you pay way more in the long run. They are one of the major obstacles that will be in your road to financial freedom and wealth. Imagine if all the money going to your interest each month alone was actively invested. What would your bottom line be?

  27. Derek says 10 July 2007 at 21:56

    I can’t wait!!! You really hit the nail on the head. I’ve been trying to figure out a way out of this LITTLE situation I’m in; I think I’ve be posting a comment again next year with good news. This is awesome!

  28. Ming says 16 July 2007 at 10:25

    I understand the temptation to cut up credit cards, but I would only resort to this as a very last resort for someone who has addictive problems. Why? Building credit is important! Because I had credit cards I paid off every month, as well as being extremely responsible with my bills, I was able to get a mortgage on my first home. I had no one to cosign, so without credit, I would have been screwed. Home prices have appreciated nicely since then, so I’m glad I did this.

  29. Steve "The Debt Settlement Man" B says 14 August 2007 at 10:16

    I love the Carnival of Debt Reduction.

  30. Jane says 31 August 2007 at 03:01

    Most of the students nowadays fear debt (Education Guardian, 2006). However, debt is not necessarily a bad thing, if you can control it. The first rule of controlling your debt is not to spend too much. Other ways that you can save make money are;

    1. Find jobs in universities
    2. Find other alternative like doing some money online opportunities like selling your past essays, coursework and dissertation (http://www.coursework4you.co.uk/sel.htm)
    3.Look for summer jobs.

  31. marie says 11 October 2007 at 02:36

    i would tell nick, the first step is to start earning more money than your currently making so that u can fund purchases and expenses without adding to your credit card. after that he can start a debt snowball with whatever cheapest debt causes him the most stress. imo the focus isnt to reduce debt, its to reduce stress with a smaller debt, so you get quick results and greater peace of mind. good luck

  32. Daria says 12 November 2007 at 09:15

    What a great post!

    I recently bought a house and I was worried about my credit history – along with the debts I owed. I’m still not out of debt, but I have been working hard on getting there. This plan is going to help me out a lot.

    I particularly like the snowball idea. It just makes sense. =)

  33. shane says 13 November 2007 at 15:20

    Great topic you have here.
    First off debt=slavery really let that sink in and all else will follow. I had afriend in some debt, in the orde r of 10 k he was going about it all wrong, trying to pay off the highest interest, which made sense to him (stress does weird things to the thought process) I instructed him to free up some money by paying off the lowest balance first and start saving. Which you recommend. Then had him look at where his money was going. Freakign nut was paying like 250$ month on cable phone and internet. CHOP that out dude and you have 250 bux to throw at debt. Well he needed a phone, not a cell which was running him over 100/month. He hated me but he found an extra 200 a month. Credit cards? Bye Bye. Call you bank and or card dealer and arrange to have the balance lowered NEGOTIATE.
    I think though first and foremost you have to GET REAL with yourself first. Seriously do you need that 6$latte so you look cool at Starbucks NO. ALOT of debt problems come from image problems I think. Pay cash for your toys, not credit, want that big screen LCD tv, SAVE FOR IT!!. I had him put money in jars for the week and was only allowed to spend what was in the jars, Funny but simple.
    I got into debt probs when I was a teeny bopper, ahhh those days… Thank god I had a parent who cared enough to let me fail then showed me the ropes about money. As well the answer to debt is always IS MAKE MORE MONEY get a second job till the debt is gone.

  34. Someone out of debt says 14 November 2007 at 16:27

    I took a different route to clear all my student debts after University. I ended up taking a job though hagwanhelper teaching English in Korea. It wasn’t the easiest job I’ve ever had but I got to spend a year in Asia and by keeping my expenses low I was able to save enough money to wipe out most of my debt in that first year. A second year wiped out the debt and gave me a good chunk of change in the bank.

  35. Hans says 22 November 2007 at 22:55

    thanks J.D. This has helped me to cut 2 credit cards just now when you write to stop rationalizing. Indeed!

  36. Jenn says 02 December 2007 at 21:53

    My thing is my student loan payments are more than I make each month and when I try to lower them I’m told I can’t. Now I’m being told i cannot re-consolidate because I have defaulted because well I don’t have the money. If the company won’t work with me how can I get out of debt. I want to be able to save, but I can’t when I am throwing all my money in student loan repayments and cancer bills.

  37. Maria says 11 December 2007 at 16:34

    Sounds a lot like Dave Ramsey… We’re following Dave’s baby steps to get out of debt and it’s working…slowly but surely.

    I totally agree that ditching the credit cards is crucial to financial success.

  38. Steven says 15 December 2007 at 13:58

    Debt is simply a product of insufficient
    cash-flows – too many people over estimate
    the inflow, and underestimate cash out-flow.

    If you stand any chance to get out of debt
    and increase wealth you need to create 1. A
    Cash-Flow spreadsheet – all money earned vs.
    monthly expenses, 2. Develop a budget, a
    (be honest about your spending) a budget
    where you pay-yourself first, then creditors.

  39. JohnK says 15 December 2007 at 17:24

    Once again, people blame “debt” as being the evil, when debt should be used as a tool.

    Many people in this world would not have a car (even poor people who can barely get a “buy here, pay here car) without some form of loan.

    I don’t know of anyone who paid for a $250,000 house with cash.

    Debt is a tool that should be used carefully, it is not “evil”.

    Those who cannot manage debt are like those who cannot resist chocolate, and gorge themselves on it. If that is your case, then feel free to not use it….but its like having a carefully planned toolbox and refusing to use the screwdriver.

  40. Melissa Otdoerfer says 28 January 2008 at 06:40

    Hi, I am working with a debt settlement company right now to help me pay off credit cards. Is there any way I can pay this off faster?

  41. keith says 15 February 2008 at 19:17

    As a good friend of mine will say, if you dont have enough cash to pay for it, it means you can’t afford it.

  42. Aimee says 20 February 2008 at 21:41

    Great advice.

    I think having your savings in an account that is not easily accessable is a great idea. It has worked really well for me.

    Once that initial urge to buy something has warn off (usually a few hours) that money is still tucked safely away in the bank account and you’re relieved that you didn’t spend it.

    ING is good for that or if you’re in Canada PC Financial has a high interest savings account (over 4%) that makes you wait a day to access your money.

  43. 2million's envelope budget says 25 February 2008 at 22:14

    Great advice. I think that also applies even when you not in debt, but headed in that direction. For instance to manage expense — certain categories of purchases for my wife and I are cash only. When we do a vacation — we bring a envelope of our budgeted money. Another example is food/dining out. These are two areas that we currently do this and it helps us control our expenses. Other areas we don’t have concern over.

  44. Aaron says 27 March 2008 at 11:48

    For students looking to avoid debt, I would say join http://barefootstudent.com. It is a great site that helps students find odd jobs such as babysitting, landscaping, and more.

  45. Mfreeze says 03 April 2008 at 11:04

    I hear people who claim debt is not the problem and partially that is true. You do need the ability to borrow. However, they are not looking at the real problem with our economy and the debt burdens that people have been subjected to. Credit Card companies like to lure you in with small opening balances and as time passes and you make payments they increase those limits sometimes to unbelievable sizes. For instance I have a $25000 credit limit on a card.I also have 21900 on that card charged. I have another card that has a $4000 limit and I happened to exceed that limit so not only did they charge me $39 over the limit fee but also raised my 4.99% to a whopping 30%. Needless to say I paid the entire card off and cut it up. Most people cannot afford to do that. I couldn’t either except my tax refund came at the right time. My other cards are 0% and 9.9%. This debt also causes alot of other things to happen. The deflation of the dollar, the mortgage-crisis, the rise in oil prices, and commodity prices. They are all interconnected. The main point here is that before the late 60’s – early 70’s when credit cards first came about people saved and bought what they needed and could afford with cash (except assets like a home or necessity such as a car). Our grandparents would roll in their grave to know that we are paying interest on groceries, eating-out, gas,and entertainment -all things that hold no value. So when debt reaches a point beyond the limit of comfort, you essentially become an endentured servant to society and life becomes stressful and unfullfilling. It’s like one of my favorite sayings, “If you put a frog in hot water he’ll jump out. If you put a frog in cold water and slowly turn up the heat, he’ll boil to death”. That is what alot of us are suffering from. So do not knock those in debt trying to turn things around. At least they are not filling bankrupcy.

  46. KathyJ says 13 April 2008 at 08:43

    Test. Does this work?

  47. SSNurse says 19 April 2008 at 05:50

    Great article!

    To the person [#5] who has the credit card with the $500. limit: That used to be me, I spent and then overpaid so I had a credit of aprrox. 2 or 3 dollars every month. Then an EMERGENCY came up, cleaned out my savings $3000. at the time, cleaned out my checking $400. [which was left after paying my bills] and I could only afford the minimum on that credit card. Took me a year to recover and pay of a 300. balance! The moral of the story is things happen and if you pay cash, you will never be stuck paying interest on cash payments.

    Credit cards is not a necessity–it’s a credit score buster!! Keep your emergency cash reachable, but not easily accessible and make it grow interest while you’re not using it…’make your money work for you’ and stop working for money!

  48. Dave Paul says 19 April 2008 at 11:22

    After 17 years on the job and spending money like it was going out of style , I had my job threatened and it has lead me down the same path as many of you , I could not agree more on not needing credit cards at all , I am convinced that the only good debt would be a house andeven that is a stretch , My blog talks on some of these points but also points out free opportunities to make money to make the snowball larger faster , visit http://thecarrotandthestick.blogspot.com/

  49. Student Loan Advice says 17 May 2008 at 21:19

    Here is a site I have in my del.icio.us bookmarks that has helped me get out of debt (I’ve been debt free for 4 years!!):

    Dave Ramsey – Real Debt Help: http://www.daveramsey.com/

    In addition to his information, videos and mp3’s he has a community area that is probably the best “get out of debt” community site I have ever been a part of.

    Make sure to check his site out but he also has a radio show. I don’t know what station it is but I do listen online through his website. There hasn’t been one day I haven’t learn something new in the last 3 years I have been listening or reading.

    Check it out – its free and really worth it.

  50. Jen says 07 July 2008 at 15:43

    I discovered this blog about a month ago while searching the Internet for ideas to get out of this MASSIVE debt that is currently crushing my husband and me ($52,000 in credit cards — plus a mortgage, a Home Equity Line of Credit [second mortgage], and 2 car payments… not to mention we are expecting our first baby in 5 months — which equals more debt!), and just when I was at my wit’s end, this entry about the debt snowball really gave me hope. We have already completed steps 1 and 2 (stopped acquiring new debt and cut up all 12 credit cards, as well as established an emergency fund) and we are currently attacking the cards.

    First I needed to go back through our bank records to see exactly where our money was going. I went back 6 months and was shocked at what I learned! My husband is self-employed, and I had a vague idea what he was spending his money on, but I didn’t know EXACTLY where his money was going (or how much). Once I analyzed how much he was spending on what, I was able to put him on a budget. We have been married almost 11 years and we have never had a “household budget.” Ever. But now I know how so very important this step is! Since we now keep track of every single penny that enters and leaves our lives, we are no longer spending money haphazardly. I have started making him take a lunch from home every day, which saves a ton of money on fast food. Instead of using a debit card to buy groceries, we take a designated amout of cash with us to the store and ONLY spend that. I’ve increased my hours at work (now that the morning sickness is gone), and we are trying very hard to live more frugally in general (shutting off lights that used to stay on, shutting down the computer nightly instead of leaving it on for days… things like that).

    And guess what? We have been able to pay off 3 of our lowest balance credit cards in only a month! (Only 9 cards to go!) Before we took a good, hard look at how stupidly we were handling our money, we struggled with just making minimum payments month after month after month. But now, slowly, we are seeing some payoffs for our efforts, and I’m finally starting to feel less like a prisoner of debt! I know it will take years for us to be debt free (right now my main concern is the credit cards, THEN we’ll get into paying off the cars and both mortgages), but it’s really encouraging to know that there is a way out if you’re willing to commit yourself to a new way of thinking about your money. And we will never, ever get into this situation again!!!!!

    Thank you J.D. for this wonderful blog!!!

  51. Julie says 14 July 2008 at 00:59

    Great article. About the snowballing, though. Don’t pay the minimum. Pay $1 *MORE* than the minimum. Your FICO score will be the better for it since the records will show “paid more than the minimum”.

  52. PAM says 17 July 2008 at 07:49

    Out of Debt, worked real hard at it, I am now paying off the utilities a year in advance. I have cut down on giving my biggest problem.

  53. PAM says 17 July 2008 at 12:16

    I was in debt to the tune of $30,000,what I did was watched the Oprah program on cutting debt. I got myself a big board, wrote down all my debt and month by month reduced the totals.I watched that board constantly, put it in the front room, put it in my bedroom. I still owe $12,000 on my Yaris, but next year I will double the payment. I now have Mom and Dad all credit cards paid off. It feels good. I am working to pay the utilities a year in advance .I am now working for myself, My biggest expense or problem was charity, every Christmas I went wild. No more, I am now working on my own self, I now realize people don’t need stuff, it’s only stuff, A child needs a gift not the whole world. Keep working at it.

    • PAM says 26 July 2011 at 05:06

      OUT OF DEBT, WORKED HARD. STILL PAYING THE UTILITIES A YEAR AT A TIME. COULD BE FACING LAY-OFF NEXT YEAR, BUT FEEL AHEAD OF THE GAME BECAUSE i AM LIVING FREE. PS:YOU DON’T NEED A CREDIT CARD, LIVE WITH WHAT YOU HAVE. iT OPENS UP A WHOLE NEW WORLD. LIVING WITH-IN YOUR MEANS

  54. Lisa says 24 July 2008 at 13:14

    I’m just $3,000 in credit card debt and am having a hard time making minimum payments. Sad huh?

  55. So Cal Savvy says 06 August 2008 at 11:13

    I completely agree with you!

    In a Psychology class I taught I spent a whole lecture on why people know what they should do and why they still don’t do it.

    The lesson boiled down to the fact that implementing things that are good for you in the long run have less hedonic value for you in the short term. Since we are built to react to short term rewards, it is much harder for us to choose to make the decision that will benefit us less in the immediate future, but more in the long term.

    Personal finance has some basic rules that are easy to understand, but hard in the short term to give up the immediate short term rewards (real shopping is sooo much more fun than window shopping).

    However, if we can set up a system that mitigates the feelings of the loss of these short term rewards, we will reap a much larger reward in the future.

  56. Eric J. Nisall says 06 August 2008 at 11:31

    @JD

    It’s funny, everyone interprets things the way that they fit, and not always the way a message is intended. Many people also feel that everyone should be able to live by the same set of standards and practices that they live by, and condemn those that do not (as evidenced by some of the responses to your own postings unfortunately).

    Yesterday, after reading some blogs and heading over to the bookstore to peruse for some new material, I got so frustrated by those exact sentiments I didn’t know what to do with myself. I ended up just writing to get my mind clear:

    http://letsblogmoney.com/2008/08/05/financial-advice-is-not-a-one-size-fits-all-proposition/

    It baffles me that some people can take a message and twist it just so that they can argue the point, as ST did.

  57. Jessica says 06 August 2008 at 11:41

    Great post today, JD. It really is easy to say that if you don’t want to be in debt don’t spend. While it is common sense, some people just turn their lives around to follow the steps needed to get into a better financial situation. It is analogous telling someone who wants to lose weight, to stop eating. When put that way it just sounds ridiculous.

  58. Victor says 06 August 2008 at 12:06

    I see pf the same as juggling. Concept is easy (throw balls from one hand to the other), yet the execution is difficult. Just as with all the failures in juggling (dropping the balls), the same feeling with pf (emotional spending and building debt): The failures are the steps on the path to success. Keep trying and you will see that soon you can balance your budget and juggle 3 balls at the same time!

  59. Charlotte says 06 August 2008 at 12:27

    I agree that we have to fight human nature to win such as paying down the lowest balance first. I do the same thing with a To-Do list. I tackle the easiest ones first instead of the most important (but would take longer) to get quick victories. It keeps me motivated.

  60. April Dykman says 06 August 2008 at 12:29

    A lot of life’s problems could be eliminated with common sense.

    Eat right. Work out. (I just solved the problem of obesity.)

    Save more, spend less. (I just solved the problem of debt.)

    Marry a kind, honest person and be the same way in return. (I just solved the issue of divorce.)

    I can solve problems all day long, apparently. I wonder what issues in the negative commentors’ lives could have just been solved with common sense, since I presume they aren’t perfect beings.

  61. Adam says 06 August 2008 at 12:30

    Currency’s value is relative. If everyone is “rich” then no one is rich. For every dollar you gain, other people must lose a dollar.

    To be well off yourself, you require people making bad financial decisions.

  62. L.J.T. says 06 August 2008 at 12:33

    If dieting were as simple as understanding math, we’d all be thin. Hmm…parallels abound.

  63. Jim says 06 August 2008 at 12:42
  64. Corey says 06 August 2008 at 12:44

    Thanks for the great post. There is such a huge emotional aspect to finance that a lot of people don’t understand. I for one grew up financially illiterate in a family that always lived paycheck to paycheck going slowly into more debt. So, I inherited those habits. It took a lot of hard work to get myself right financially and distance myself from those habits. Sure, it seems simple now–don’t spend more than you earn and save some money–but it was a hard road to get there.

  65. Bill says 06 August 2008 at 12:45

    Another thing commentators like the one you posted ignore is the MASSIVE pressure being put on us all to behave in a financially irresponsible fashion.

    Advertisers, banks, lenders, credit card companies and even people who make products we really want or need spend BILLIONS of dollars to research and then implement what amounts to psychological warfare to get us to spend, borrow, spend, borrow, spend.

    Even a healthy, well-adjusted, strong-willed person would struggle under that barrage. That’s why blogs (and communities) like this are helpful; they provide reminders that there is another way to live.

  66. Adam says 06 August 2008 at 12:48

    I don’t own a TV, nor do I read magazines. They are nothing but mindless trash. Amazingly enough, I don’t feel any of this soul-crushing pressure you refer to. I wonder if there is a correlation?

  67. db says 06 August 2008 at 12:49

    One issue with why simple doesn’t mean easy is that personal circumstances differ (which is why JD points out that personal finance is personal.

    And it’s not all frivolous. If I’m earning $500/mo. and rent costs $475, it’s simple to say I have $25 left. It’s not easy to cover everything left over after rent is paid. In fact, it is probably downright impossible.

    Likewise, if I’m making $10,000/mo. but I’ve got a $4500 mortgage and a $700 car payment, plus the gamut of regular expenses, I may not actually be able to come out ahead despite the advantage of a tremendous personal salary.

    Making choices and prioritizing is never easy — it involves knowing ourselves enough to make choices motivated by our own best interest, even if that means choosing the harder choice. The person making $500 might need to work another job or find a cheaper way to live, or a roommate. The person making $10000 might need to evaluate whether they really are serving their needs with a lot of high-dollar expenses.

    Either way, choosing is hard. (and it’s not all about choice either — the $500 person might not be able to find cheaper housing or work for more pay. The $10000 person might not be able to easily cut expenses like a mortgage or loan.)

  68. Jeremy Bettis says 06 August 2008 at 12:50

    Adam: You are an idiot. Imagine that there is no cash, but we are a couple of cavemen. If I work really hard, and grow a crop, now I am marginally richer.

    If you go out and yourself a crop also am I poorer? No of course not.

    Compare that to the modern world: If I go to my job and create something of value to my employer, I get a paycheck, and my employer has my creation (whatever that is). And now I am (slightly) richer that I was before. Again, how does that make you poorer?

  69. Adam says 06 August 2008 at 12:59

    Please watch the personal attacks, friend.

    A crop has intrinsic value. People need food to live. Fiat currency has no such value. What makes one million dollars a lot of money, is that so few people have that much. If all the wealth in the US was evenly distributed to every citizen do you think one million dollars would have the same purchasing power?

    Supply and demand principles in action.

  70. James says 06 August 2008 at 13:07

    It’s tough to make that transition into long-term thinking. When the rest of the world–often including our parents–don’t, then it’s a fundamental change in how our lives are run. I find myself thinking in completely new ways and asking questions I never would have asked before. Long-term planning can’t be emphasized enough. I can’t remember who it was, but a VERY wise man said something along the lines of “Short-term planning leads to long-term failure.” I think that about sums it up.

  71. Derek says 06 August 2008 at 13:11

    I think you missed the main point of the comment, which was to point out that there’s a large cause behind being in debt: a psychological one. It seems like in your blog today that you completely overlooked that point.

    The simple truth is that if you were able to get over the psychological barriers that put you into debt in the first place (primarily the lack of ability to delay happiness), then getting out of debt and building wealth is very much so simple. I hate using the word easy, simple is a much better description of the process.

    Whoever made the correlation to weight loss is spot on. Losing weight and being fit is very simple: Eat better, exercise more, sleep more.

    Again, easy is a horrible word. Life happens, people have weak moments, which can turn into much bigger things if not kept under control. But PF is indeed simple for those who are healthy and able to work. Increase you incoming, decrease your outgoing, make a budget and a plan to attack debt. Simple.

    Actually doing it without addressing your mental weaknesses: next to impossible.

  72. Eric J. Nisall says 06 August 2008 at 13:22

    “Losing weight and being fit is very simple: Eat better, exercise more, sleep more.”

    It is irrational to over-simplify either personal finances or weight loss in such a manner. What about the person with diabetes or other health condition (such as glandular) who is required to maintain a certain diet or regimen of medication that causes weight gain? Or the person who is unable to exercise due to prior injury or other medical condition? Or even the people who cannot sleep regularly due to sleep apnia or other medical condition? Most of those cannot be controlled by the individual as many are hereditary or genetic in nature, so simply saying “Eat better, exercise more, sleep more.” is just wrong.

    As I referenced in post #2, try reading the last paragraph in my blog posting from yesterday for the correlation:

    http://letsblogmoney.com/2008/08/05/financial-advice-is-not-a-one-size-fits-all-proposition/

  73. Jeff says 06 August 2008 at 13:32

    Adam:
    Econ 101, Day 1: The economy is not a zero-sum game. True, not everybody can have the penthouse apartment, but other forms of wealth are not limited in the same way -me buying a cellphone does nothing to prevent someone else from buying a cellphone. And besides, many of us really don’t care whether or not we have the best of everything — money and the things they buy are the means, not the end.

  74. plonkee says 06 August 2008 at 13:37

    I sort of agree with Derek, you couldn’t have done all this without changing your mindset. That’s probably a bigger achievement than finally getting out of debt because it’s the hardest step.

    The psychology of personal finance is a lot more than just using tricks to get ahead (although the tricks are useful).

    For example if someone is self-medicating their unhappiness by spending they would to well to look at the route causes of their unhappiness as well as forcing themselves to stop spending.

  75. Jef says 06 August 2008 at 13:39

    Great post. I’m a lot like the poster in your story. For me, this stuff is so easy. For my GF it can be very tough and its hard for me to understand why she can’t just follow my lead. So, I’ve lived this.

  76. Sara says 06 August 2008 at 13:43

    JD (and anyone else interested in the psychology of decision-making)- You should read “Sway: The Irresistible Pull of Irrational Behavior” by Ori and Rom Brafman. It’s a really interesting book (in the vein of The Tipping Point by Malcolm Gladwell) about why we make decisions to do something even when armed with evidence and rational thought that we should do the opposite.

    It’s really relevant when it comes to things we know we should do, like save money, or eating less, or doing the right thing. Some people are really naive (ie: this commenter) about the things that affect our decision making at a deeper level. Just because something is obvious doesn’t mean it’s easy.

    It also talks about how external factors like group dynamics or the context of a situation can affect decision making too… I highly recommend it. It’s a quick read as well.

  77. rdzins says 06 August 2008 at 13:46

    I have to agree with this, all personal finance sights all say, pay down debt highest interest to lowest, live within your means, spend less than you make, have an emergency fund ect….. We all know we should do it but everyday there are people and messages all around us saying spend, spend, spend. So if it was all about math and we just went by the math no one would be in debt, but it is not. That is what is so great about these blogs, there real people and sometimes we do dumb things after we really sit down and think about it we can say, hey that was really dumb!! But by having sights like these you can connect to people going down the same path, share stories and hopefully learn from each other, what works for one does not work for all, you personally have to find what works for you, there is no one size fits all concept.

  78. Ms. Clear says 06 August 2008 at 14:33

    It’s not in the nature of the current US economy to make everyone rich. Everyone can’t be rich. That’s ridiculous. There isn’t enough money for that.

    But if you follow the advice you read here, you can improve your financial standing.

  79. BrianF says 06 August 2008 at 14:38

    @ Jeff and Adam

    There are some who operate within a paradigm of scarcity and there are some that operate within a pardigm of abundance. A paradigm of scarcity is usually the source of such statements as “since Bill Gates has $30Billion, then the rest of the world is $30Billion poorer.” This statement assumes that wealth is a zero-sum game.

    The paradigm of abundance says, “Gates created an industry that has injected trillions into the world economy; it only makes sense that he has $30B.” The logic is that Gates didn’t take $30B from others; he created trillions and benefitted from his creation to the tune of $30B.

    I personally operate within a paradigm of abundance. It’s depressing to live otherwise (in my opinion).

  80. Finn says 06 August 2008 at 15:28

    I agree with those talking about discipline and changing behaviour.

    This is one reason I don’t really understand the debt snowball trick (size over interest). The problem isn’t in finding the “right” solution – we know the solution – but in finding the discipline. I suppose there is an argument over picking a sub-optimal way just because it has a higher success rate, but I think this sidesteps the real issue – we have an inherent bias that makes us not achieve what we want to achieve in the long term. That’s the root cause and learning it won’t just solve the immediate problem, but pay off as you gain a new way to approach life’s problems.

    I see picking a sub-optimal solution as bypassing the important lesson to be learnt.

    Once you have the discipline and subscribe to following “the right way”, most things become academic… as was said, be it for weight loss, finances… even things like relationships, and incredibly complex and personal issue, tend to do better when we don’t impulsively let our wiring decide. Same with anger and all sorts of reactions as well. Work on our time preference, understand the real costs including opportunity costs and the outcome is your own optimized financial situation.

    There is no golden rule as to how much we should save – we can see how saving can be negative when a miserly old person dies without ever enjoying life, too afraid to spend. There is a balance to be had. You only put off spending for so long, but this should be line with your life goals. It’s a very important concept, IMO, and the foundation of good financial advice will start with the concept of balancing future goals compared to the present ones (the “save save” and “spend spend” messages aren’t holistic enough for me.)

  81. Adam says 06 August 2008 at 16:14

    “The logic is that Gates didn’t take $30B from others; he created trillions and benefitted [sic] from his creation to the tune of $30B.”

    From where did those trillions come? Bill Gates may be rich, but he doesn’t print money.

  82. MS says 06 August 2008 at 16:49

    “From where did those trillions come? Bill Gates may be rich, but he doesn’t print money.”

    Consumers – they made the choice to exchage their hard earned money for his product. If you don’t want his product, keep your money. Captialism in action. Obviously you are using this forum to spread your socialistic view.

  83. mwarden says 06 August 2008 at 16:54

    Adam @27: Where did the trillions come from? Two places. First, the earth has inherent wealth. Each person has a portion of that intrinsic wealth; some more than others. But that is not everything. IF that were everything, the total wealth of the world would never increase, and productivity gains through technology would NOT result in greater standard of living; further, the world economy would never beat inflation.

    It is not a zero sum game. There IS a relationship between people gaining wealth and others losing it, but it’s just not that black & white.

  84. Char says 06 August 2008 at 17:49

    All I can say is that for 10 years I stayed a slave to debt by trying to do the “rational” thing of paying off the highest interest debt first. I then read a book in 1996 by Mary Hunt teaching the principles basic to what you discuss. After I began paying the smallest debt first and applying that paid off amount to my next smallest debt I became obsessed with the positive feelings I felt from accomplishing something so wonderful. 2 1/2 years later I was completely debt-free and we went on a cash paid vacation too. I don’t care what logic or learning to do things “right” is – I have been debt free for 12 years and I feel wonderful every single day I wake up. I know that it “didn’t make sense” to some, but for me it allowed me to get rid of the debt and finally be free!

  85. Shanna says 06 August 2008 at 18:11

    The same thing could be said for weight loss, fitness, relationships. If understanding the concepts was the hard part we’d all be perfect, but the concepts are the easy part!

  86. Diatryma says 06 August 2008 at 18:53

    This is why I use the term Stupid Brain Tricks.

  87. Niles Gibbs says 06 August 2008 at 20:33

    My teachings are very easy to understand
    and very easy to practice,
    But no one can understand them and
    no one can practice them.

    – Lao Tse

  88. Andrea >> Become a consultant says 06 August 2008 at 20:38

    My personal finance skills have no doubt played a huge role in getting me where I am. But I have to admit that our household income — the combination of two strong salaries — has played a significant role. Part of the reason not everybody is rich is that not every body has the cash flow to make triple mortgage payments or what-have-you. Not everybody was able to save for a downpayment when we did. Sure, many people were better off than us and still others made the choice to spend their money. But the fact is that the bulk of the population struggles to get by. And that’s in the “First World”. The rest of the world is not rich because $2 a day puts you in the top quintiles. Seriously.

    Habits are important. But people who make a lot of money can do a lot of dumb things and still sometimes end up being comfortable, as long as they save some of it. I’m hoping that habits and a decent income will continue to hold us in good stead.

    (Now, before somebody comes and robs me, I just want to say that I’m not the kind of rich you’re thinking!!!)

  89. Sam says 06 August 2008 at 20:50

    Agree. Personal Finance is so easy however, the most challenging part is the implementation. I still get lots of emails asking me for personal finance advice. You’ll be shocked some of my email senders have Phd and graduates from good schools.

    It all boils down to your will. You can have the knowledge, but if you don’t have the will to do it, your knowledge will be worthless.

    Sam
    Fix My Personal Finance
    http://fixmypersonalfinance.com

  90. Luke S. says 06 August 2008 at 20:59

    I think a compromise between a snowball method and the mathematically optimal method might be the best. Starting out with the snowball gives you a boost of confidence that it is possible to pay off debt, then once you are in the habit of paying off your debt, move to the more optimal path.

  91. Richard says 06 August 2008 at 21:21

    It’s not in the nature of the current US economy to make everyone rich. Everyone can’t be rich. That’s ridiculous. There isn’t enough money for that.

    I’d disagree to an extent. As a whole Americans are doing much better than Brazilians or Mexicans or many other people in other national economies.

    I think the nature of the US economy is such that virtually everyone can live at the level that they really truly want to.

    Some people are struck by misfortue beyond their control, but I think that most people decide that either a) they would rather have a truck/bigger house/vacation/etc. than chase money or b) that they would rather not go to school and work that job they might not like as much.

  92. Sam says 07 August 2008 at 06:16

    Personal finance is easy to understand, just like eating right and getting exercise are easy to understand, its the actual doing that is hard.

    I think most people know and understand that to get rich slowly you need to spend less than you earn. But its hard to actually spend less when you have bad habits, you are keeping up with the Joneses, using your credit card and going deeper into debt, buying/leasing new cars, buying flat screen t.v.s, etc.

    I’d like to be in better shape, I know what I need to do, but the actual doing – getting up early and running is hard for me.

    We used the snow ball method to pay down $55,500 in debt, although Mr. Sam with his MBA wanted top go with higher interest first. But, our biggest debt, Mr. Sam’s MBA student loan of $27,000 was at a pretty low interest rate.

  93. getagrip says 07 August 2008 at 07:12

    @Finn Please consider your own words, “Once you have the discipline…”.

    The issue folks focusing on the optimal financial solution continously discount is that many people in serious debt are struggling to *gain* that discipline and *do not have it* when starting these types of programs. On the path to gaining that discipline they may have to follow a sub-optimal mathematical option because it allows them short term wins, which So Cal Savvy points out so well in the first comment above, can be crucial in demonstrating the benefit of something you’re doing, especially if it’s something new to you.

    Also, let face it, no one wants to be a loser or be considered a loser. We all have egos and most folks have tied their self worth to their social status and material things. Getting something “smaller” (be it a house, car, apartment, etc.) or doing with “less” (can’t go out more than once a month now) screams “loser”. And they have lost! These folks cannot support the lifestyle they’re portraying! This is hard for many people to admit, both to themselves and others. So needing those “wins” to demostrate they aren’t so much losing at life as they are gaining control in their lives can be a big deal emotionally.

    As they gain the discipline by seeing that they’re moving forward and the program is working, they can gain confidence and hopefully move to make better financial choices, similar to what Luke S. mentions above.

  94. Mark Nelson says 07 August 2008 at 07:22

    Personal finance should be easy. The challenge is that most people are not very disciplined. Getting out of debt does not happen over night for most people. It will take time, patience, and discipline.

    People need to see something positive happening as they are on there debt reduction plan. I have always advised that along with their debt reduction plan they build up assets as they go along.

    As their debt load decreases and they watch their assets (maybe a savings account) grow sometimes it will give them hope and they can continue on their path.

  95. elisabeth says 07 August 2008 at 07:50

    I think it is interesting that the comments so far haven’t included a conideration of what JD wrote at the end: “It took a lot of hard work (and a little luck) for me to get out of debt.”

    My situation at the moment is very good — but it could so easily have been otherwise. It was luck as well as preparation that I had great health insurance at the time I developed cancer; we have been lucky to have good cars that lasted years and years and not been involved in accidents; we’ve been lucky that our parents had good health and savings so we haven’t had to support them as they age. And so on! Yes, we’ve done a lot of things right, but we’d never take all the credit, we’ve also been lucky.

  96. Jeremy Bettis says 07 August 2008 at 08:22

    Are you sure that the “lowest balance first” is mathematically worse? It does have the feature of giving you more margin in your monthly budget. As soon as you pay off that lowest balance debt, you don’t have that payment any more, and now you have a little more breathing room in your budget, which will help you avoid going back into debt.

    There is a family that was in my last Financial Peace University class that can’t even pay their minimum payments on their debts. So this man took an extra job working evenings and weekends. When that smallest debt is paid off, they can make the payments and he can quit that extra job. If he instead paid on the low interest student loans, it might be 3 years before he could quit his part time job.

  97. Chicago Gal says 07 August 2008 at 08:36

    I understand the concept of the 0% balance transfer idea but many of those deals tie to a card that has a higher rate after that introductory period. When people are already burdened by debt and costs higher than they can afford, they are not likley to have it all paid off in that 6 month period and will have a higher interest rate to deal with in the long run. It is also important to note that dealing with banks is a tricky matter that you might think. They aren’t always heppy to grant you the transfers or cancelations you want and relentlessly try to offer you alternatives to stay with them when you call. The plusses and minuses of these (marketing) deals offered isn’t always evident from the pitch they give you. It is hard to defend your territory with banks and credit card companies and it takes a lot of time, follow ups and dilligence to get things fixed. Some people have a hard time standing up to them and aren’t always informed of their options.

    That said, I do believe the lowest debt amount and the highest rate methods both work and your personality kind of determines which one would work better for you.

    Personally I have never had large amounts of debt to worry about but I have watched people all around me try and deal with it for years. It is very easy to slip into debt and very difficult to get out of debt because it is designed that way.

  98. mwarden says 07 August 2008 at 08:43

    Jeremy @42: Yes. It is very simple to verify this, too. Consider cash advances in credit cards. When you take a cash advance, it is charged at a higher rate of interest (usually). When you send in a payment to your account, the credit card company applies your payment to your purchase balance and NOT your cash advance, until your purchase balance is completely paid off. This is because the purchase balance has a much lower interest rate, so it is better off for the company to use your payment to pay off that low interest debt first.

    You of course want that to pay off your high interest debt first. In this way, your $1 would pay off $1.25 worth of debt vs. $1.16 worth of debt (difference in 25% and 16% interest).

    The same applies to different accounts.

  99. Bill in NC says 07 August 2008 at 14:02

    Sure, some people’s spending is not in their control.

    I thought my mom’s alimony was decent, until she got sick and needed nursing home care for the last 7 years of her life.

    Without any prior family history, no one in their 40s (as mom was when she became ill) thinks about buying long-term care insurance.

    Most of those in trouble I meet, however, are indeed the “$10,000/month income, $4,500/month mortgage, $700/month car payment” type of people.

    There is substantial opportunity for savings (and a rapid reduction in debt) for the latter group, with only a modest decrease in their spending habits.

  100. MoneyEnergy says 07 August 2008 at 14:24

    I might add that while one can devise a plan for getting out of debt, a whole other plan might be needed for STAYING out of debt. That’s just as important. I can pay off my cards easily, but if I overdo the process I’ll be back to needing them again in two months. So this is where the emergency fund comes in. But then you need to do the same process in reverse for the emergency fund. You need to keep replenishing it.

    So what might the answer be for both processes? Spend less than you’ve got, at all times… it’s the only solution.

  101. Dave Farquhar says 08 August 2008 at 09:13

    To those who don’t like the debt snowball and would rather pay debt off in the “right” order, highest interest rate first: The difference between paying them off in the best order and random order is at worst a couple of months, including the mortgage (so we’re talking at least a couple of hundred thousand dollars of debt).

    So if a person chooses to snowball their debts in a less than optimal order, that’s still much better than getting frustrated and giving up and then paying them off when they come due.

    I purchased my home in 2002. Today my wife and I own it and the two cars parked in the driveway outright. There are a lot of things we could have done differently, and perhaps gotten where we are a little bit faster. But any time I start to feel any regret, I just look at the $100,000+ we saved by not carrying that mortgage a full 30 years.

  102. Jen says 08 August 2008 at 10:16

    While there’s no doubt self-discipline and moral fortitude are necessary if you want to get richer than you are, there are also always things outside our control. Not everyone has legs to train for a 10k run, after all.

  103. Lazo says 09 August 2008 at 07:18

    For the past year I have followed this plan. My wife and I put our heads together and decided we needed a positive financial direction; spending everything we earn (and then some) is not a positive direction, but rather a very negative one. Our debts were all current (several credit cards, an auto loan and student loans). We paid the minimums and put together an emergency fund. We then began working on our debt snowball, attacking the smallest debt. We now ONLY have a little credit card and student loans left.

    This DEFINATELY required a change of mindset on our parts. We had to spend less than we made. We put forth a budget each month and stick to it the best that we can. Yes, emergencies come up. To this point our emergency fund has covered them.

    If this plan does not work for you, you have one of two issues: (1) you spend to much or (2) you don’t make enough. A lot of people spend all their money, but don’t know where it all goes! Do a budget then – spend your money on paper before you get it in-hand and try to not stray from it! If you just don’t make enough to cover your bills, you need to first prioritize them. Then you need to address your income problem. Perhaps you need another job! Perhaps you need to sell some things to knock off some debt!

    Jen @ 48: “Not everyone has legs to train for a 10k run” – if you approach personal finance with that attitude, you’ve failed before you even began. Succeeding at personal finance is not a matter of aptitude; you need to WORK at conditioning your “personal finance muscle”, especially with respect to self-restraint and discipline, to succeed.

    One last note: since I began reading personal finance books (especially Thou Shall Prosper – Rabbi Daniel Lapin), I have found that my mind is working differently. I have become more optimistic with respect to life in general. I control my money, not the other way around. That, along with the opened communication with my wife with respect to our personal finance, has made waking up each day much easier. I’m not always worried about the bills. I’m not worried about the dishwasher breaking. I don’t worry as much about anything.

  104. The_Overdog says 09 August 2008 at 13:06

    I disagree that personal finance is at all easy without having studied it. It’s not. It’s hard.

    1. The fact that certain debt is better than other debt is not a simple concept.

    For example, when one person has a $20k car payment and the other has a $10k credit card payment, and they are paying them back at the same rate, how do you convince the person with $10k in credit card they are worse off?
    A 3rd person has a $40k college debt. Which of the 3 is best off?

    2. ‘spend less than you make’ is not as simple as it sounds.

    Example: Which person is spending less than they make? The person who pays $300 for a car repair out of cash, or the person who puts the repair on their credit card, and only pays $50 for it that month? $50 is less than $300 right, which is spending less?

    3. Large expenses that lead to greater future opportunities are difficult to comprehend.

    For example:
    For a person who is not wealthy but has an OK job, how do you convince them to spend $20k for schooling when their new starting salary will only be $2 or 3 more per hour than their current salary?

    And these questions are just off the top of my head. Personal finance is tough.

  105. Dan Tanner says 09 August 2008 at 22:22

    Spend less than what you earn is a simple statement, yet hard to follow. By cutting expenses you cannot even live properly. The only solution gets there is somehow to earn more to pay more.

    This year everything in life has gone up and the incomes have dried up for most Americans. Its this Kangaroo economics of a failed country that is bearing fruit on its citizens. There is not enough done to improve what this economy can can do, as a results we are pushed into a corner and spitting at the walls. How much can you cut?

  106. mythago says 10 August 2008 at 21:44

    April: for a lot of people, it’s partly not understanding that what comes easily to them does not come easily to others, and seeing that gap as a moral failing (“I can save 35% of my salary, why can’t you?”), and partly defensive attribution.

  107. MaximizingMoney.com says 22 August 2008 at 15:34

    I was up to $10,000 in debt on various credit cards, and by buckling down and just paying as much as I could each month, I’ve finally been able to catch up and pay them off, but it took a couple years. You’ve just got to pretend that you’re broke, take all of the additional earnings you get each month and put it towards your debt, and then don’t lose hope, because you’ll eventually get there, that’s the hard part, seeing all of your money go towards your debt each month. Thanks for the tips, great article.

  108. Anne says 16 September 2008 at 17:32

    We got ourselves into debt in 2003-2004. Someone very kindly gave us an interest free loan and we were able to pay the money back over an extended period. It took 3 years and 10 months to pay back that debt interest free. If we’d still been paying interest on that loan we’d be up the creek. It taught us just how expensive credit really is and it taught us that we can’t be trusted with credit. We now have an interest-free loan on some furniture that will be paid out long before the interest free period is up, and we have a mortgage. No other debt. Never. Ever.

  109. Steven Williams says 22 September 2008 at 15:59

    Back in 1991 my wife and I started our own small business (homebased) it grew slowly but at a steady pace.

    By 1994 we were making over $250,000 but we were drowning in debt. We fell into the trap of making more money equals spending more money.

    Before we started our business I was making $358.84 every two weeks as a 3rd shift security guard.

    Long story short we started selling things and paying off all of our debt and just paying cash.

    The first BIG BENEFIT was less stress. I didn’t owe all of these people money. The second BIG BENEFIT was the ability to save BIG MONEY!!!!!

    I was making $250,000 per year but I barely had $1,000 in the bank. After making paying my debt down I started seeing months that I would save over $10,000 CASH!!!!!

    We’ve been on a cash system since 1994 and I love sharing our techniques with people that would like to either become 100% debt Free of semi-debt free.

    http://www.therealdebtsolution.com

  110. Christine Groth says 06 October 2008 at 09:23

    The funny thing is that many times people get themselves right back into debt again after working so hard to get out. Instead of trying to save money, find new ways of making more money. This is how the wealthy think.

    Christine Groth
    http://www.101WaystoMagnetizeMoney.com

  111. JAMAL says 24 October 2008 at 10:04

    WHAT I JUST READ IS RIGHT.BANK ARE MAKING THEIR MONEY FROM PEOPLE WITH LOW INCOME.CREDIT CARDS ARE NOT BUILDING YOUR CREDIT,BUT CONVINCED YOU TO FALL IN DEEPER DEBTS,THEN IT WILL BE SO HARD TO SURVIVE.

  112. Anubis says 01 November 2008 at 20:13

    This is too true. I had a total of $9,000 debt six months ago. I hadn’t read this yet but I realized that I need to spend less than what I earn to get ahead. This mentality has helped me and now I just finished paying $4,000 of it. I see the light, and Ima keep heading in that direction. I got rid of the credit cards and have never felt free-er!

  113. Simone Hardy says 23 November 2008 at 11:38

    If we have all of these debt pay off programs, books etc. why is that Americans are still in debt? Did anyone read the Banker’s Secret in the 1980s telling you to send in an extra payment to pay off your home 7 years sooner?

  114. B13 says 25 November 2008 at 05:03

    I’ve just cut up my credit cards. Not only do I aim to get out of debt, but I also aim to GET RICH IN A YEAR. Follow my weekly progress at my get rich in a year blog

  115. Brantley Oakey says 14 December 2008 at 00:23

    I think that perhaps the most important part of this process is to make the commitment to stop “cold turkey” using debt. Don’t make the mistake of using the debt snowball effectively only to get back into debt when you’re done.

  116. LisaB! says 02 January 2009 at 11:45

    True facts!

    Getting out of debt is more of a slow cooker deal than a microwave operation – we are working one debt at a time on our debt snowball and we are going to nail this thing!

    We had a business that failed, and now we owe over $143k. I started http://www.ThePrudentWife.com to share our story! My big joke is that we did not get the govt bailout, being normal folks, we just have to pay it off. We ditched our gorgeous home, cutting our expenses drastically and are on our way!

  117. Beth says 27 January 2009 at 15:13

    For anyone who participates in paid online surveys as another way to earn extra cash, Columbia Business School is recruiting for an online participant panel to take paid surveys. It’s an alternative to the marketing companies whose honesty you sometimes question…

    http://columbia.qualtrics.com/SE?SID=SV_232GW1pPgM4JQ1K&SVID=Prod

  118. Until Debt Do US part says 03 February 2009 at 09:11

    Great post – you give good sound advice. The point you make about the psychological element of debt reduction is crucial.

    It is bad habits that have created the debt problem in the first place and it is only good habits that will solve these problems in the long run. To tackle these bad habits (and eventually our debt) we need to mentally prepare ourselves first to take the necessary actions.

    It is this mental fortitude that will serve us well on our journey to debt freedom.

    Easy? no – necessary? absolutely!

  119. Debt Doctors says 17 February 2009 at 06:42

    There is a forum at Debt Doctors Foundation, a charity, where issues of debt may be posted and interact with others :

    http://www.ddukonline.org/forum/

  120. Morgan says 27 February 2009 at 06:41

    This is a fascinating topic, isn’t it?
    Some money gurus state simply “stop debting, pay your bills on time…”
    To me that is the equivalent to telling an alcoholic “don’t drink anymore.”
    My new approach is a value-based approach. Looking at our dreams and loves and re-ordering our lives. Most people do not dream of credit card debt at 25% interest. But we do dream of writing that novel, climbing Everest, being self-employed, sending the kids to a good college.
    It becomes easier to stop behaviors (do I want this $300 purse or do I want to go to Hawaii…?) that don’t fit into our new exciting hopes and plans.
    Great posting. Thank you.

  121. Thera says 01 April 2009 at 11:16

    What the credit card companies won’t tell you is that, while they are cheerfully helping you “get a better deal” they are actually closing your account on you. Nice thing to find out months later when your furnace breaks down.

    Debt management plans cause the card companies to do the same thing and don’t tell you.

  122. Nancy L. says 08 April 2009 at 05:33

    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.

  123. Holly says 08 April 2009 at 05:47

    I agree with you, Nancy…most of us sincerely wish that we had not only read these types of books when we were younger, but also actually heeded the advice. It’s so much easier to save, invest, and provide for life’s essentials when you have control over your spending at an early age, with time on your side and a sane head on your shoulders. We need more mentors for the young- J.D., that’s why what you are doing is so important! For the rest of us in our 30’s and beyond, we learn from past mistakes and refuse to repeat them.

  124. Aman@BullsBattleBears says 08 April 2009 at 05:48

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

  125. Alison Wiley says 08 April 2009 at 06:31

    I’m tickled you’ve discovered this book, J.D. I read it and used it as a sort of Bible back in the 80’s, and it helped and shaped me tremendously. Its emphasis on behavior is spot on, and produces results.

    I use some of Jerrold Mundis’s principles in my recent short piece giving practical tips on a happier, less expensive lifestyle http://www.diamondcutlife.org/twenty-ways-to-a-simpler-happier-life-part-ii/

  126. Kelly says 08 April 2009 at 06:46

    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. 🙂

  127. frugalscholar says 08 April 2009 at 06:47

    I’ve written about this book too.

    And I picked it up for 25 cents at a thrift store. Though not as well known as Ramsay et al, I think this is among the best and should be better known.

  128. Chett says 08 April 2009 at 06:59

    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.

  129. Adam Baker says 08 April 2009 at 07:01

    It’s funny, how timeless these basic steps are. Whether it’s 2008, 1988, or 1908 the principles of not taking on more debt, tracking spending, and having an emergency fund are the fundamentals of taking back control of your life.

    If I come across this book at a thrift store, I’ll be sure to pick it up!

  130. The Personal Finance Playbook says 08 April 2009 at 07:01

    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.

  131. TeresaA says 08 April 2009 at 07:19

    Just want to share….I have paid of my car. I am so excited! It is my first complete step to being debt free. I hope to be able to use it atleast two more years. I have negotiated interest rates of 10% and 7% on my two credit cards. Step two is paying those off, accumulating an emergency fund and saving for a car when this one inevitably dies. I am working hard to change my attitude about spending. One thing that is working a little for me is asking myself the question: Is what I am about to do (spend) long term gratification, or short term gratification? What will it mean to me tomorrow, in a few days, or even next week?

  132. Tyler Karaszewski says 08 April 2009 at 07:49

    “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!”

  133. Barb1954 says 08 April 2009 at 07:52

    TeresaA says:
    Just want to share….I have paid of my car. I am so excited! It is my first complete step to being debt free. I hope to be able to use it atleast two more years.

    Congratulations, Teresa. It’s a great feeling not to have a car payment, isn’t it. But I have to ask — why do you only plan to drive your car another two years? What model year is it? You should be able to drive it for many more years. I bought a ’96 Honda Civic new, paid off my four-year car loan in three years, and am still driving the car. It only has 84,000 miles and runs great — even during our nasty Wisconsin winters. Although I’d love a new car, I plan to get as much use out of this one as I can.

  134. TeresaA says 08 April 2009 at 08:02

    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).

  135. Chett says 08 April 2009 at 08:25

    @Tyler

    I’m so glad you’re a regular on this blog. Your insight and witty banter keep things lively.

  136. Moneyblogga says 08 April 2009 at 08:43

    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.

  137. IstheRecessionOverYet says 08 April 2009 at 08:43

    It’s amazing how simple the advice seems yet so many people struggle. My mother was once in credit card debt, got out due a life insurance settlement, and ten years after that is back in it again. I’m trying to help and encourage good financial habits but it feels like I’m banging my head against a wall.

  138. TeresaA says 08 April 2009 at 08:55

    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!

  139. Marie says 08 April 2009 at 09:08

    I’d be interested in hearing how he would address the issue of repeated debt due to chronic illness. I’ve seen a couple of friends and family members go down this path. It’s heart-breaking, and doesn’t seem avoidable. You can’t “quit spending” when it’s for medication keeping a loved one alive.

  140. Tyler Karaszewski says 08 April 2009 at 09:13

    @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).

  141. jtimberman says 08 April 2009 at 09:14

    Dave Ramsey has said often that he didn’t invent any of the concepts that he teaches, he just packaged them well. I wouldn’t be surprised if this book is on his shelf.

    Personal finance isn’t the only area where information is repeated in slightly different ways/forms by different authors. Look at how many books and DVD sets are available on house flipping, or investment real estate as another example. Raw food diets are gaining more popularity as well and there’s a lot of overlap in books too.

  142. brooklynchick says 08 April 2009 at 09:17

    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.

  143. E says 08 April 2009 at 09:30

    Yes, the same info comes in many packages. Some packages are more accessible to different people; what works for one may not work for others. So it’s great that these books are out there and that they work for people. 🙂

    TeresaA,
    I have a 1998 Saturn SL1 with 250k miles on it. I didn’t think it would last 10+ yrs but it keeps on ticking! Hopefully yours will too. 😀

  144. Adam says 08 April 2009 at 10:12

    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.

  145. Adam says 08 April 2009 at 10:16

    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.

  146. TeresaA says 08 April 2009 at 10:49

    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.

  147. Jerrold Mundis says 08 April 2009 at 11:11
    Thank you for your generous review of this book. Someone sent me an email with a link to this site and page this morning, which brought me here.

    For what it’s worth, two points: First, there is revised, updated, and slightly expanded of this book available, which was published in 2003.

    Second, I continue today to live wholly by the concepts and techniques within it – and have greater peace and even joy in my life because of that than ever I did before.

    (And, for the record, I believe this was the first book ever to address the subject.)

    Thank you again. I wish you and your readers every happiness and success.

  148. Tyler Karaszewski says 08 April 2009 at 11:15

    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.

  149. TeresaA says 08 April 2009 at 11:46

    Tyler,

    You’ve summed it up very well:

    Tyler says “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.”

    So, once we get past the most basic of actual needs, perhaps what we really have to recognize is what our “priorities” are.

  150. rdzins says 08 April 2009 at 12:45

    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.

  151. Linear Girl says 08 April 2009 at 14:16

    Tyler – I agree with your distinction between wants and needs as well as with our intentional confusion of the two. I must quibble a little with your analysis of your list, though. You’ve got:

    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.

    I define a “need” as something which is required in order to live, preferably in a reasonable state of health. With that definition in mind:

    1 – We do need shelter, but not necessarily the full apartment.
    2 – For many a car is a luxury, but for others it is the only way to keep a job to provide for the rest of ones needs. Mass transit and bicycles don’t cut it in many locations.
    3 – A want.
    4 – A want for the vast majority, a need for certain medical apparatus.
    5 – Clean water is a need all over the world.
    6 – Three meals a day aren’t a need but a minimum caloric intake is a need all over the world.
    7 – Health insurance isn’t a need, but health *care* is, all over the world.

    People reading this post almost certainly live where your list describes a very modest lifestyle. For better or worse, our culture makes demands on us to meet certain standards that aren’t considered necessary in less affluent parts of the world. An example from my e-mail today (I work in Finance at a large social services non-profit) was that a child mentioned at school that they had no food at home. Child Protective Services were called. Our case managers worked with the family to buy them food so that they could keep their child living with them. It may be the standard in many parts of the world that children will go without food (and the chance to attend school at all would be a luxury), but here that circumstance will cause a family to fall apart. 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.

  152. Healthyeaatingwhilebroke says 08 April 2009 at 14:17

    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.

  153. Bozo says 08 April 2009 at 15:10

    Just stumbled upon your blog. Very interesting. I might offer one comment to this thread. There is “good debt” and “bad debt.” One might argue that a loan for educational purposes, which is in the nature of an investment in human capital, is good debt. Taking (or carrying) a mortgage at 5% might also be good debt. I might also disagree about shredding your credit card. I have one. Just one. I pay it off each month, in full. I wonder how folks book rental cars or air tickets, buy on-line, or do all the other myriad things we “do” without them.

    Best regards,

    Bozo

  154. Bob Smiley says 08 April 2009 at 15:13

    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.)

  155. Hogan says 08 April 2009 at 15:22

    Lineargirl,

    Your points are well taken. While people all over the world are struggling to get any sort of safe housing, adequate nutrition and potable water, in America we have CPS workers calling parents “unfit” and removing children from their homes, when the parents are unable to provide adequate dental care for their children. Our societal standards of what constitutes a “decent living” are much, much higher than in most areas of the world.

    This is off the point of the original post, but I feel it bears repeating that how one defines a decent standard of living is subject to an enormous amount of cultural influence.

  156. Frugal Bachelor says 08 April 2009 at 17:00

    @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.

  157. katy says 08 April 2009 at 17:23

    My favorite PF book; kudos to you!

  158. kitty says 08 April 2009 at 19:55

    @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.

  159. Saver Queen says 08 April 2009 at 20:35

    Isn’t it interesting how a book written more than 20 years ago can be just as relevant today? I definitely agree with the premise that money is about your state of mind, not just math.

  160. Lynda Savage says 08 April 2009 at 20:48

    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.

  161. Lynda Savage says 08 April 2009 at 20:49

    add- properly referenced of course and in APA style

  162. MoneyEnergy says 08 April 2009 at 23:08

    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.

  163. BG says 09 April 2009 at 09:33

    As for tracking all spending…I found that using my debit card (European version, i.e. the money is removed from the account a day later) for shopping made tracking a lot easier. My amount of cash has halved without me spending more on shopping. It’s the credit card principle that causes more of the problem, not using cards per se, IMO.

  164. Linear Girl says 09 April 2009 at 12:04

    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.

  165. Cookeville Weather Guy says 09 April 2009 at 14:00

    It is all about personal responsibility. There aren’t too many ways to say “Hey, quit overspending and racking up debt.”

    Mr. Mundis was able to write about it in a very understandable way. Crown Financial Ministries with Larry Burkett took it to the next level. Dave Ramsey has carried it to the mainstream level. All use, pretty much, the same concepts.

    As far as booking things, I’ve found my Mastercard Debit Card books plane tickets, concert tickets, hotel rooms, and rental cars just fine.

    My bride and I have never carried credit cards since we’ve been married.

  166. laura says 11 April 2009 at 07:43

    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.

  167. Dear Samus says 11 April 2009 at 18:01

    Thank you so much for your blog and for being a true inspiration for me to get out of debt! I love your blog and your work. Keep up the great posts!

  168. Linda says 11 April 2009 at 20:02

    The article is a rip off of Dave Ramsey’s books. He coined the term “debt snowball”, the steps etc. Go to the true source…. DaveRamsey.com. Books: Total Money Makeover, Financial Peace University. He is on Fox Business Network on TV 7pm Central every night. People call in, he helps them figure out how to get out of their mess.

  169. MoneyEnergy says 19 April 2009 at 20:45

    But if you never use credit cards, how do you begin to build a good credit rating?

    And if you don’t have them, how can you purchase things online in stores that only take credit cards?

    I think it’s important to have one credit card, and just learn how to properly use it.

  170. James says 20 April 2009 at 18:27

    JD,

    I’ve applied some principles you’ve outlined in this blog as well as the debt Snowball. Honestly, everything for me has changed quickly and dramatically. I am down to one credit card now that carries a my entire credit card debt – and thats been cut in half.

    I had several others and those were paid off using snowball. I did well with negotiating lower interest rates too. Within 8 months I’ll be completely debt free. Thank god. I’m almost addicted to not spending money now.

    I’ve also found several other ways to make money on the side. And one that is fun and hope will generate some small income by creating a blog called Tech for the Masses.

    Thanks for the inspiration!

    – James

  171. Susanne says 24 April 2009 at 07:32

    Thank you for suggesting this book! I waited patiently on paperbackswap for Total Money Makeover and now Mr. Mundis’ book. It’s a kinder, gentler Dave Ramsey, for those of us who haven’t become gazelle intense. My favorite idea so far is realizing just how blessed my son and I are. Can’t wait to finish!

  172. Jill says 25 April 2009 at 15:13

    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.

  173. Justin Smith says 07 May 2009 at 20:14

    The debt snowball is a great practical tool.
    The excel software YNAB (You need a budget) has a great implementation of this in addition to zero-based budgeting software. It really helps put the debt into perspective!

    – Justin

  174. Jessie says 10 May 2009 at 05:49

    Ok, so here I am; an 27 year old, single Africa American woman, no children, has a pretty good job overseas and im in dept. After leaving Collage and having loans to pay back and no job, I ended up in debt. In Nov of 2007 I got a job overseas and paid of most of that dept along with continuing to help my family with their finances. We’ll I am the untraditional Kind and I have been wanting to get a house and tried for the longest. It seems even though I have paid almost everything off my credit, I am still unable to get a loan. My goal is to purchase a house while I am here and have it all paid off before I leave. As far as the president goes that may be some time in 2010. I am not sure where to go from here. As I stated, I have been working on my credit since getting over here, but the numbers just are not moving. Please Advise.

    Thanks You

  175. Dan says 15 May 2009 at 20:07

    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.

  176. geekmom says 02 June 2009 at 16:56

    That’s great for people who can save and spend money, but what about those who lost their jobs and are only making enough to survive?

  177. Michael says 15 June 2009 at 13:46

    STOP living on money you don’t own. It’s that simple.

    • Satrap says 26 September 2011 at 21:00

      I have to agree with that. it seems to me people (especially in the US) tend to think when they use a credit card it pulls money out of their own bank account. I mean, why would you barrow money to spend on things that are not necessities?…

  178. L. Ashby says 20 September 2009 at 01:08

    I have buit up over $100,000 in student loan debt. I’m not the least bit proud of it, but I’m tackeling it. I sometimes seems like it is trying to drown me. I am working as many extra shifts / jobs as my body will allow. There are only 24 hours in a day. I have a home, family of 5 with 3 kids in high school. I keep throwing money at my problems only to make them go away for a little while… then get behind on something else..The classic example of “too much month left at the end of the money”. I have a plan…so far it is promising. thanks for letting me vent…LA

  179. MOLLY says 20 September 2009 at 07:13

    Just one day at a time, Please get yourself a board “paper board” and record all your debt on it. List everything. even utiltiies. Put it on a wall so you can see it everyday. Slowly the debt will dissappear. Do not add debt to it. When something is paid, start a new sheet. I list the debt, then each month reduce the amount as payments are paid, when I got to a zero balance on a debt I didn’t like seeing it on the board so I would start and a clean piece sheet. PS: “I had $36,000 in debt when I started this ” On my new board I only owe for my car and I just bought a temperdedic bed. That is my only credit due , but now on my board I have what will be due for the rest of the year. I have a line for Geico, Property Tax, Birthdays, Christmas, Taxes “IRS”. Then I do list my utilities, Chevron, lights, heat, water. I do pay my utilities a year at a time, so I am now good for the rest of this year. But in January 2010. I will start over. At the top of my list will be my car, the new bed, what I will owe for all utilities for the year, all taxes, insurances, birthdays, fixed expenses you will incur during the year, if I am planning a trip in the year. It’s a BUDGET on a sheet of paper, so I can stay on track. Now that my debt is now manageable, I have room at the bottom of my sheet and am now writing little stuff like, Just reasoning with myself, like, Christmas is coming do you need to spend so much on the grandkids a gift is fine, you don’t need to give them the world, the potluck at work, bring one dish don’t volunteer for everything, I am trying to talk myself out of buying a Smart Car, I have up there, quit spending money. You don’t need it , just little pep talks to myself. Debt consumes to much of your time and energy. I had to sacrifice, and I now don’t have any credit cards, I live on cash and now make better choices, The paycheck now has to last till next payday, so I think first. I did it you can do it too. One step at a time. Good Luck and God Bless

    • MOLLY says 25 June 2013 at 07:08

      UPDATE, still useing my board, works like a charm. Living much better, money flow differently, the show Debt Till You Part is a good reference. I am finding i really can live with only $40 a week, for gas, and food. There is really nothing I need at the stores, so I just don’t go. I use to budget $200 a week and would spend it, now I don’t hang in there guys

  180. Janie Out of Debt says 23 September 2009 at 18:32

    I think this is sound advice. However, when you are in loads of debt and you are living paycheck-to-paycheck it can be very hard to save for an emergency fund. The only way I could do this was automatically putting $2.00 a day into my savings account. I know this wasn’t much but I also felt good that I was saving.

    I have to tell you that now I am out of debt and into the savings habit my life has transformed. I am so glad that I started saving $1000 a year in my 401k at the age of 24. It may not seem like a lot but I started early and stuck with it. Each year I was closer to getting out of debt I increased my savings. Now, I have $29,000 in my 401k and I am 29 years old. I am proud of this amount because 4 years ago I had zero and I was in $26,000 of debt (just checked this amount today).

    I wish everyone the best and just know that you can do it. It is possible to get out of debt and save.

    Best wishes,

    Janie

  181. injured says 02 October 2009 at 22:58

    How can you be free of debt if you need medicines to miantain in order to survive. thanks.

  182. Rao-about to be free from debt says 09 October 2009 at 01:58

    hi JD
    great post indeed!
    it took me 3 years to realize that i was trapped with credit cards and credit lines debt.the day when my boss gave me the increment, next thing flashed in my mind was a credit card,…so happy !!!! now I too can apply and own my credit card, yahooo!!!! its because here in Singapore we need to have minimum yearly income.

    i applied only one credit card and i don’t know how the other banks came to know me suddenly…all the banks started calling me to offer CC’s. again I am very happy to accept all after one year i ended up with 7 banks x 2 cards = 14 cards in total.

    actual story started here, i spent money like nobody’s business at the end of two years i ended up with $30,000 debt.i didn’t realize that i was just paying for the interest and late fee only.one fine day i took down all the outstanding balances on paper, to my surprise, i still need to pay the amount i borrowed from banks, i just paid monthly interest and late fee only.

    so first thing i did was cancel all the unused cards,
    next targetted at the cards with less amount to pay…other cards i paid fixed amounts and i got rid off few cards within one year i started seeing the results. clear the debt cancel the card or line of credit. now i only have 3 accounts to close and i have enough savings to close them.

    if i had a chance to read this article 3 years before, my life would be different.It took 3 long and bitter years for me to get rid of the debt. no fun, no entertainment, no parties, no outing at last a lesson learned….
    now i have only one card that is linked to my savings online account and i think its useful and i am using it wisely.
    I dont blame banks for this, i blame myself for not using these tools properly

  183. Deedra says 21 October 2009 at 17:51

    I have a question.
    I’m 29 years old and still going to college. I have approximately 42,000 in college loans. I have currently have a judgement against me for 4500.00. I also have approximately 8,000.00 in oustanding medical bills. I have no emergency fund, no retirement account and am currently unemployed but looking for work. How do I get a handle on this situation. What do I do?

  184. Jerry says 18 November 2009 at 16:32

    Great article. I am already using some of these financial tips in my financial life.

    Thanks a million!!!!

  185. Eric J says 14 February 2010 at 20:29

    Great post. Thanks for sharing these guidelines. A lot of people I know could use this advice. Living without a credit card can be tough because we have become so conditioned to having them in our lives. I did some reading and discovered that in the early time period of American history, you were considered a social pariah if you had any form of debt or owed someone. I think that we should refurbish or economic system to do away with a debt-based currency altogether. This would encompass credit cards of course. Thoughts anyone?

  186. Suzanne says 16 February 2010 at 16:56

    Every time I find articles on getting out of debt, they are about credit cards, and the advice is much the same. If I were in that situation, this is sound advice, but I do not have any CC debt, I own my car, and I spend the minimum on every part of my life that is possible and stretch every penny I have.

    Could you instead, speak a little about student loan debt, and balancing that with wanting to fund an IRA and a small savings?

    To give you my situation, I will be graduating with approximately $140,000 in student loans (medical school), and will begin making a pittance salary for at least 1 to 4 more years in internship and residency, starting this summer.
    1) I would like to start paying some of this huge debt off with the pennies I earn in the coming years, even though it will mostly be deferred and I am not required to pay yet.
    2) I would also like to open a Roth IRA, and have a small ER fund.
    I am trying to figure out the balance of maxing out an IRA and forgetting about the debt for now (maybe pay a couple hundred a month vs killing myself to pay more) or balance the two goals and not be able to max the IRA while I am young because of my extremely low salary, or forgo a decent ER fund, etc.

    I suspect these dueling goals are at the heart of a lot of graduating students’ questions, even if they are financially responsible users of various nondeductible debts.

    Thanks in advance, Suzanne.

  187. TheRealDebtSolution says 16 February 2010 at 20:21

    Excellent information! I completely agree with the method to get out of debt.

    The problem that most people have even with all of the information is that they are still hooked on spending money.

    They have to have something to counteract their need to spend money they don’t have. Setting Personal and Financial Goals is a strategy I use with my clients.

  188. Get Out of Debt book says 22 February 2010 at 09:23

    Great article, straight to the point and very easy to understand. Unfortunately, most people in debt don’t take it seriously enough.

  189. taz says 28 February 2010 at 13:24

    Wow, after reading some stories here, I’m almost embarrassed to post mine because I don’t have near the debt some do. I started a budget (on paper) a few months ago. I have $65K in debt and $50K of that is the mortgage.

    I made about $57K in 2009 but have never lived on a budget; I would have $600-$700 dollars left after paying all my bills (monthly). But before next payday I would be down to $40 or so dollars in my checking account and nothing to show for it. I am still not sure where it went. It couldn’t have been all those colognes I ordered online, LOL. But it was. I also have a few neices I like to spoil seeing as I have no kids and am single.

    Now, I budget my money. A few days before payday I write out a budget for the upcoming check. All bills due in the two weeks after payday are written down and budgeted for. I have been seeing that I have approx. $300 left over, so I auto-deposit half to savings and carry the balance over to the next budget in two weeks. My savings has grown exponentially since starting a budget on paper; it gives me a sense of having control if I manually write it down for now.

    The next time I do the budget I have a “beginning balance” plus left over $ for that two-week period. I started the snowball on my debts and have to date paid off around $1900 in medical bills and drastically reduced the balance on the CC. I have a bank loan, and a family loan (0% interest) and, barring life’s little bumps, should be debt-free by Aug. 2010 (less mortgage), but then I can double or triple the principal payments without penalties.

    Prayer helps too!!!!

    ps. there are many articles on becoming debt free, and, like this one, DaveRamsey.com is another good source.

  190. TheRealDebtSolution says 28 February 2010 at 20:24

    Excellent article…Finally more people are starting to think like I do.

    No Credit Card for Emergency – Cash
    No Credit Cards for Rewards
    No Credit Cards for Rental Cars
    No Credit Cards for Big Purchases
    No Credit Cards to Save on Purchases

    Close the credit card accounts, pay them off ASAP – make settlement offers 1 at a time.

    Establish an emergency fund of cash that you can assess without penalties. (Mattress Money)

    PAY CASH FOR EVERYTHING MOVING FORWARD

  191. Ken says 01 March 2010 at 06:44

    I am all for getting out of debit and I agree with what you are saying about saving first and that you don’t need credit cards to get by. I will say that I disagree with having to cancel my gym membership. I can have hte payments taken out of my checking account via a check card. Maybe it will take me longer to get out of debt, but I want to continue with the gym.

  192. javier | growingrich.net says 02 March 2010 at 03:10

    nice article about debt, I think J.D. Roth is tackling the most important points of how to pay debt off. I just miss an important one. Once you get out of debt, don’t get in debt again !!

  193. Brian B says 10 March 2010 at 12:48

    I have to disagree with cancelling your World of Warcraft account. I have to think that 12.95 or whatever it is per month is a VERY cheap way to spend your time. It is much cheaper than going to a movie a week, or going shopping.

  194. David Wilcoxson says 02 April 2010 at 07:42

    I agree with the everything except “If you have a gym membership, cancel it.” Physical health is more important than financial health, so people need to keep exercising.

  195. MOLLY says 04 April 2010 at 16:38

    You got to get serious only if for a little while, cancel the gym membership or any memberships , go out side, walk around the park. You’ll never get out of debt until you see the problem, and that’s saying no to the extras, right now.

  196. Ron says 22 April 2010 at 12:57

    This book is not like Dave Ramsey. I tried the Dave Ramsey approach and it did not address my situation. I took a second job delivering pizza, cut expenses, etc. and deprived myself and still it didn’t work. This one does work.

    Dave Ramsey is about deprivation and this book is about treating yourself well while stopping incurring debt.

    Dave Ramsey is about concentrating on lowering your amount of debt, focusing on that figure, and on preserving your credit rating.

    This approach does not focus on the amount of total debt so much or on your credit rating, but instead focuses on tracking spending, making a spending plan, paying your creditors (not necessarily what they are demanding), and working the program.

    Dave Ramsey does not address the situation where your debt is way too high and you can’t pay the minimums on your credit cards and everyone is telling you to go bankrupt, but you don’t want to. I looked at lots of other alternative financial gurus and none of their approaches worked for my situation.

    This is an alternative that works. It is counter-intuitive, so if you haven’t tried it, it’s hard to judge. You have to do it on faith. Scary, but it works. You have to stop using credit of any kind even if that means that you can’t pay the minimums and will default on your loans and they will be hounding you, calling you constantly, jacking up the interest rates, late fees, etc.

    Also, Dave Ramsey does the charismatic tough love thing a la Doctor Phil and tries to make you feel like an idiot, saying things like the “stupid tax”. This only reinforces the sense of shame and low self-worth that led to this problem in the first place and complicates attempts to see the situation clearly and address it.

    This book on the other hand, helps the person see the issues clearly by making a spending plan and keeping track of all expenses. And it has a plan for paying back all debtors while putting yourself first and building some savings.

    Paying less than the minimum on the credit cards is scary because of the usurious interest rates, late fees, etc., but it does work. You can eventually settle these accounts and become debt-free. They will knock off the extra interest and late fees when they finally settle with you much later.

    Yes, your credit score is damaged, but why would you want to get back into debt anyway? Having a bad credit score is a blessing in disguise. It helps keep you from incurring any debt.

    All these other financial advisors talk on and on about your credit score as if it’s so vitally important. To someone with debt problems, it should be the least of their concerns.

    The best plan is to not need any credit or worry about your credit rating because you simply pay in cash.

    Great book.

  197. Paul says 23 April 2010 at 06:35

    Debt is a behavior problem and one can’t get out of debt until the spending behavior is changed.

  198. Laura says 25 April 2010 at 17:18

    I have a very small limit CC that I use for things like buying online and such when I can find items that are cheaper or not available locally. Example, to order print from a big box store locally is .25 per print, online is .09. I order them, have them shipped to the store for free and immediately after ordering, go to my chceking account and make a payment equal to the cost to my credit card. This is a good use for a credit card and while I could order them with a debit card, it does nothing for my credit score to use a debit card.

  199. Bob says 27 April 2010 at 11:49

    Great article…
    And to those that say you need credit cards to rent cars, hotel rooms, airline tickets – not true. I’ve rented cars from Avis, Budget, Enterprise for years just by using a debit card, same with hotel reservations and paying for airlines. If I don’t have the money – then I’m not taking the trip.
    Hope to be credit card debt free in 2011 and will just have student loan debt and mortgage debt. Scheduled to have that tackled by 2015.

  200. wbmwright says 05 May 2010 at 13:47

    Okay, I have been reading this blog for a couple years…and I still can’t seem to do it; getting ,out of debt. A failed marriage going from 86,000.00 income to 43000.00,… son in college (no financial aid cause it was based on the 86,000.00 family contribution…garbage/phone/internet/etc…..food/bills…past and present…100 pounds gained from the emotional stress…I cannot seem to do this. I need a practical life application of how, how how, to do this. God help me! Anyone have any REALISTIC suggestions?

  201. molly says 06 May 2010 at 07:05

    I just know that a big board worked for me, seeing it on a large piece paper, out in the open just worked. Your child may need to get a job and help out with the college expense, or where is his father, let him pay the childs expenses. I don’t know how old you are, but you need to think about yourself and your future.
    I too slid back a couple of times. Just start today and go forward, send me your address I’ll send you a board

  202. Financialbondage.org says 11 May 2010 at 16:12

    also forget debt consolidation. that don’t work.

    Id sell stuff and work extra jobs. and stop borrowing like the article said. Reduce bills and payments. Get rid of anything you can that comes with a monthly fee. Your goal is to have no payments.

  203. Fred says 22 May 2010 at 08:54

    Don’t cut up your credit cards, just stop using them. Put them away in a drawer. Cutting them up won’t help, you can just order new ones.

  204. Debt F. Destiny says 31 May 2010 at 07:46

    Depending on your unique financial situation, you may be able to simply modify your budget and reduce your expenses to keep up with your expenses better. For individuals with more debt than financial discipline can cure — it’s time to look at more serious options for negotiating debt reduction and repayment terms with your creditors. Call Your Creditors The first step toward improving your financial situation is to contact each of your creditors to let them know you are having financial difficulties. Particularly when dealing with credit card companies, there are often a variety of payment plans and special programs to assist consumers who are struggling. Credit card companies may be willing to stop adding late fees and interest for a temporary period of time, or reduce your minimum payment for several months, to help you get back on your feet. Call and ask your creditors what kind of arrangements they can make to help you make your payments. Loan companies and other creditors may not have as many options available, but calling them to ask is still a good idea. Sometimes loans can be refinanced with lower interest or a longer repayment term to give you more time to pay what you owe, and a lower monthly payment. If You Still Need Financial Help If negotiating new payment arrangements with your creditors isn’t enough to get out of the hole you’re in, you may need to consider debt settlement options or bankruptcy. A debt settlement company may be able to help you negotiate with your creditors for a one-time payment that is less than the total amount owed in exchange for “settling” the account. This one time payment, if accepted by the creditor, will close the account and your credit report will be updated to reflect that it’s been paid or settled — and that no further payments are owed. Not all creditors will agree to negotiate a debt reduction and you either need to pay off the total balance owed or consider bankruptcy. Whichever action you take to reduce your debt and improve your financial situation, take the time to look closely at how you manage your money to avoid making the same mistakes in the future.

  205. Tiffany says 01 June 2010 at 10:14

    “Money is as much about emotion and psychology as it is about math” … Great quote to remember; it’s funny that I never considered money and math being related at all! Thanks for posting.

  206. Joan says 06 June 2010 at 08:40

    all this info is is good but what do you do if most of the money you have goes to other bills like Electric cable live in a condo pay condo fees have 2 cars 1 paid 1 not we do not get our coffee out we have it at home im retired so therefore i do not need money for lunches and my husband takes bag lunch we spend nothing on clothing or eating out have very little at end of month to pay cc have 8 cc yes i know 8 can just about pay minimum so how do i handle that can anyone help?

  207. MOLLY says 06 June 2010 at 10:11

    I’m sorry, no one said life was going to be easy.
    First cut up those 8 credit cards. Never ever again put anything on credit. That is the very first step. You can cut back on everything. Heat, food,water,gas, insurance. You gotta want it bad enough.
    Good luck, I’ll pray for you.

  208. MBC says 08 June 2010 at 14:32

    Joan, I’m sorry to hear about your situation and can relate to your story as I used to have 5 credit cards and the debt just seemed to pile up.

    you have to realize that paying the minimum on cards will take you 40 years to get out of debt if you don’t even add a single penny on them.

    you have to bring them down into maybe one or 2 credit cards by transfering the balance, or you might want to go through a debt settlement program which you can do yourself, don’t pay a company but it will hurt your credit.

    also, it sounds like you don’t have enough income to support your living expense. you might want to look at:

    -moving into a place you pay less
    -cancel expensive subscriptions (downgrade cable)
    -get a second job.

    I know these do not sound ideal but you know you cannot go on the same path as it will just lead to more debt and stress

  209. Bankruptcy Ben says 10 June 2010 at 21:09

    I disagree with the emergency fund. Why have $1000 siting there when you’re paying interest on the credit cards. Pay it off your credit card. Cut it up and if you really need it again you can get it back.

  210. Misty Anderson says 14 June 2010 at 19:38

    I think it’s important to note that oftentimes financial ruin isn’t necessarily an income problem, it’s an expenditure (discipline) problem.

  211. Jay says 04 August 2010 at 06:24

    Hi,

    This is very informative. I’m experiencing financial crisis for almost two years. Right, I’m still on paying marathon. What suffers most is that when I have enough fund to pay, it is distributed to all my accounts (7 credit card accounts and 4 loan accounts) which when in fact I have settled my account one by one.

    Hope I can follow the steps you have mentioned religiously so that I can breathe out from the burden that bothers me most caused by debts…

    Thanks.

  212. mvm71 says 03 September 2010 at 03:26

    This is a very nice post. I think this is one of the problem that most of the people are experiencing right now. But it’s difficult to cut down debt especially for people who have not enough money to spend. In order to survive they rely on credits, without knowing later that it’s eating them up. Your article is a great help for us.

  213. Mark Hookey says 08 December 2010 at 06:22

    Nice article, thanks. I’d like to suggest also a focus on finding the lowest interest rate possible :

    1. Avoid keeping expensive debt AND significant savings. E.g. why would you have $5k in a 1% savings account and $2k on credit cards at 20%?

    2. Keep your credit cards open and use them every now and then to drive up your score even if you have cash in the bank (and the banks ‘value’ of you as a customer – since they get fees off transactions). MAKE sure you pay off the credit cards straight away – this requires some discipline.

    Cheers, Mark

  214. Almost There! says 31 January 2011 at 13:30

    You have to be 100% honest with yourself about why you got yourself into debt (yes, WHY, we all know how you did it). I figured out I was not happy with my current income, there was never enough money. Every time I “paid” for something with a credit card, I thought it increased my net worth. I treated credit cards like a bottomless savings account.

    I used to make futile attempts at paying off debt by accepting zero interest credit card offers and “pay off” other credit cards with this balance transfer. One company I “paid” with the zero interest offer charged me $57 interest the following month. That is when it hit me that the credit card companies aren’t in business to help me, they are in the business to make money. I took action after I got over the shock of figuring out I had $11,000 in credit card debt that slowly crept up on me. In my mind, if I never added it up, it didn’t really exist. I thought if I am able to pay off a zero interest balance-transfer offer before it ends, I could do the same with any account with my own realistic, but aggressive deadline. I read a blog that suggested determining a solid monthly amount to pay down credit cards, so I tried it. $500 per month worked within my budget without drastically effecting my lifestyle. I started with the smallest balance first. I paid the minimum plus $5 on all accounts except the chosen one, and I would send the remaining money toward that card until it had a zero balance. Now I have $450 total (from $11,000)left to pay on only one credit card (2 payments) and it can’t happen fast enough! I set up my online banking Bill Payer to pay half my bills every other week, which is when I get paid (example: $100 a month payment, my bill payer sends in $50 first paycheck of the month, $50 second paycheck of the month for the same bill). I have control of when payments go out since it’s my bank account so I adjust it as needed, but that is rare since I started controlling my money instead of my money controlling me. I pay 26 payments per year instead of 12. It pays down debt faster and I still have plenty leftover to put into savings and go away on cash-paid vacations. It so refreshing not being a slave to due dates! I love watching the balances go down and my savings account and credit score sky-rocket! Since I started this, I am surprised how much money I actually have without increasing my income. I now understand getting rid of debt is what builds wealth. This took me just over a year to pay everything. I used overtime, gifts and tax returns to pay it down so quickly. It is a long process, don’t get discouraged, remember, Rome wasn’t built in a day and neither was your debt. You need to find what works for you. We can all live debt-free with determination!

  215. Steve says 30 April 2011 at 06:51

    If you have the flexibility it is best to measure your unfettered spending flow then fine tune down the areas that you can live without. Importing your statement for tracking is the truest way to make a budget happen long term. My MS Money application no longer works so I searched and found a program called bank2budget (www.bank2budget.com). This program cuts my time down in paying bills and tracking expenditures by 90%. I spend about 1 hour a month and can show you trends and many other charts. It requires MS Access version 2002 or higher though. Good luck to us all.

  216. SB(One Cent At A Time) says 25 June 2011 at 20:46

    One way to reduce credit card debt is by enrolling in tot heir hardship program. all major credit card issuers offer short term/long term hardship assistance to the card members.

    It has added advantage of getting your card closed without any negative impact to credit score, more info on my own blog post
    http://onecentatatime.com/your-credit-card-hardship-program/

  217. J Miller says 24 July 2011 at 09:39

    I disagree with the one-fits-all approach of cutting up the credit cards. Nick doesn’t specify what type of debt he has….could be $8000 for a motorcycle or what’s left on a car loan, and he is a responsible credit card user. If someone can use credit cards responsibly (ie, don’t spend more than you would using cash and pay them IN FULL each month), there is free money to be made with cash back rewards. My husband and I put everything we possibly can on our credit card, pay it off in full every month using only one check, and get the following benefits for doing so (we use Discover mainly): no annual fee on the card, cash-back of up to 5% on regular purchases, access to the shopdiscover.com website where we can save 5-20% on our online purchses (even 5% at Walmart.com!), we use fewer expensive checks, we get a detailed printout of our expenditures every month (this helps us see where we might be overspending), we occasionally receive special coupons from Discover. Granted, we are very disciplined and don’t overspend and NEVER carry a balance, but we generally get about $50 a month back from the card and apply it to our statement balance. Over a year, that adds up!!

  218. John says 18 September 2011 at 05:06

    I just can’t understand people with thousands in credit card debt. How does it happen? Dont you sit back one day and think, omg?

    I worked myself through university, bought my first house at 21, am 28 now and it’s paid off, and I have 4 more that I rent out… And I even have a credit card, shock horror

  219. Brad says 08 October 2011 at 11:49

    What’s best about this article is that it will always be relevant, it will always be correct. We try to find as many shortcuts as possible yet this will always be the best answer. This is the post that hooked me into your blog, thank you.

  220. Jake says 13 October 2011 at 08:23

    I have a question for everyone. I just graduated from college and I have around $5,000 in credit card debt which consists of most of my last semester’s tuition. I’m not adding to the debt, I have an emergency fund and I am slowly repaying it. My question is this, am I best off using the debt snowball approach or should I try and get it consolidated with debt relief agency?

    , Jake from Washington

    • Joe says 02 December 2011 at 19:46

      I wouldn’t use any of those agencies, just pay off the card as fast as you can, the interest on 5 grand won’t kill you if you pay it off soon

  221. lauren schwaiger says 19 October 2011 at 11:44

    I read the book by Dave Ramsey and it has become my bible to common sense. I am newly married and am thinking of starting a family soon. I am so worried that if we lose my second income we will slide into debt. I have read so many of these comments and like the point of view I see expressed here. Does anyone have some good advice to share. I want to move on with our life, but I am terrified with all of the bad news out there about debt and foreclosures. Thanks ahead of time 🙂

  222. Leslie says 14 November 2011 at 14:51

    The first point you tackled is one of the most crucial points. Stop acquiring new debt. You would think that would go without saying, but spenders talk themselves into all sorts of things and the hole they are in gets so big that they might not ever dig themselves out. Great article.

  223. MOLLY says 15 November 2011 at 06:23

    NOW that I am out of debt, I can’t stand to have a balance owed on anything. It took awhile, but CC’s are the root of all evil. I love being able to now live paycheck to paycheck without running out of money. You learn to manage where the money goes. My board was my success.I was facing layoffs the last 2 years. My utilities are paid up through Dec 2012. Just to give myself an edge up if I did get laid off.Survived the cut this year

  224. Jon C says 16 November 2011 at 15:28

    Great advice on calling up your credit card companies for a better rate. If you’re giving them that much money in interest then they’ll try to hold onto you if you threaten to transfer your balance to a card with a lower rate. Remember to only transfer balances if it’s not going to cost you more!!!

    Still not convinced that the snowball method is best, but then again I am more of a numbers person so I find it more satisfying emotionally to see larger numbers come off my debt.

  225. Sandra says 30 November 2011 at 10:39

    I have a question concernant the debt snowball. Should you not start with the credit card that as the highest interest rate with the highest balance?

    • Joe says 02 December 2011 at 19:51

      Good question, but some suggest going after the smallest balances first to help with getting the snowball running down hill, small victories help psychologically as well. Dave Ramsey says this all the time, you find some don’t agree and the math may say otherwise, but he says it not always about the math but the psychology of it as well…

  226. Jeanette says 16 December 2011 at 15:16

    I have known about the debt snowball for years now, and want to implement it but I haven’t and here is why:

    I work a full time job and my husband is a soldier. In the grand scheme of debts, we don’t owe very much but on the salary of a soldier and an administrative assistant they seem monumental. These are very old debts from when I was a teenager. I was so overwhelmed with these debts that I ignored them, and now if I pay the minimum on all of them I am unable to spare any money for an emergency fund or anything else for that matter besides the basic amenities. I am unable to take up a second job because we have two children, and daycare is already killing us just for after school care- besides that, I want to see my children once and a while. My husband is not able to take up a second job either as he is a soldier in the midst of preparing for a deployment.

    How does one start this process when they can’t even get to the starting point. I really need advise because we have been living this way for far too long. Our 10 year anniversary will be shortly after my husband return and we want to be able to celebrate that (we didn’t even have a honey moon). We want to buy a house. We want to start our lives.

    What do we do?

    • Sonja says 27 December 2011 at 03:29

      Jeanette, the answer is simple, although not easy to do.

      You follow the same steps as given in the post.

      step 1: Lower the money you spend and/or increase the money you get in.
      Theres plenty of tips on this. But it really means you’ll need to look at every single penny that’s going out and seeing if it’s going to something that’s necessary. Almost everyone can save some dollars here.

      Step 2: Get the emergency fund up. If nothing else works ask your bank (or whereever you have your debt) for a freeze, or lowering on payments for a few months. This will allow you to get some money into a saving account.

      Step 3: Pay off the debt. What works for me is paydown months. For 1 month I’ll be completely focussed on paying everything off I can. I will not buy some candy (candy is ALWAYS a luxury), I will not eat out, I will not by lunch in the canteen. I will save everything I possibly can. The next month I’ll still make sure I save when I can, but less strict. That way you keep live livable while still paying off.


      The regarding the debt snowball. For me it worked better to have the psychologically heaviest debt first, rather than the smallest. (it’s acutally the biggest) It’s the one debt I lay awake fro during the night, so working on that motivates me more than paying of my other debt.

  227. Julie Gaudet says 18 December 2011 at 19:59

    Building a debt reduction snowball is the best way I know of to eat away at your debt. It is the way I got out of debt and it is a strategy that many have and continue to use.

  228. Frugal Living says 13 January 2012 at 11:58

    The debt snowball really works. Plus it is really encouraging to see the debt go down. Each month it just gets better.

  229. Mike says 07 February 2012 at 18:57

    I totally agree with your advice, if the individual needs it. However, the irony is not lost on me that the plurality of the ads on the sidebar of your website are for credit cards…

  230. Oscar C. says 11 February 2012 at 01:05

    Credit Cards are great… if used properly.

    In my case the monthly balance (which is paid in full) has never gone over $150.

    Only got it to establish credit and for emergencies.

    Main problem is that if it’s with me I tend to overspend. I need to place it somewhere inconvenient so I don’t spend like an idiot.

    Other then that it was useful for any emergencies that came up.

    Really a two-edged sword that is worth having provided that you have the means to pay it off.

  231. Vala says 23 February 2012 at 17:21

    1.) I have very little savings because every time I try to save, something comes up and I end up needing the money. Usually, it’s some medical emergency. I would like to have a retirement account, but it is impossible. How DO people save money, anyway?

    2.)The last such emergency resulted in a trip to the ER and more than $6000 in expenses that I can’t pay off because I have no money. No, I do not have insurance. That is for rich people, or for those who are lucky enough to get it through their work. (I will not be eligible until August.)

    3.) How does “stop acquiring new debt” even fit into such a scenario? It’s not like I plan for these things to happen, or deliberately made myself be ill because I get a kick out of giving the hospital a big chunk of my income.

    4.) I put my DirecTV subscription on suspension for 6 months because I realized that I really can’t afford it. I can’t cancel it because that would be breaking my contract, which would result in a $460 penalty. How do I get out of that? Is that even possible?

  232. Jana says 29 February 2012 at 10:36

    I agree to stop with additional debt. Also identify wants vs needs. Too many people consider their wants to be needs! When you purchase something consider the total cost, not just the monthly cost (if you upgrade your cell phone plan–what will it cost each year and for the total contract, not just each month.) Live a simple life. Do not make lots of small daily purchases–make your coffee at home and do not spend $5 on a cup of coffee. Pay off that debt and then save the money. Having money gives you choices in life instead of having your lack of finances run your life. When we spend money on a major purchase, we make certain that it is something we really want so we get the value of that purchase.

  233. Monica says 31 July 2012 at 17:18

    Good advice,

    Its just getting the well power and discipline to do it. Not only that but if you just don’t have much more money coming in than going out in order to pay more money on bills it makes it almost impossible. I am getting ready to try to start this long road but really I don’t see a light at the end of the tunnel. I have tried making extra money a few different way’s this includes trying to find an on line job, blogging, and I just not started selling stuff on ebay.

  234. Gavin says 12 September 2012 at 16:35

    Great source of motivation i feel good now thanks

  235. christina medina says 13 December 2012 at 10:45

    I’m looking for a good debt elimination program that works. I bought the John Commutta get out of debt program and it is not working for me. I guess I just wasted more money. Does anyone have any suggestions? Does Mortgage acceleration really work

  236. LD @ Personal Finance Insider says 03 April 2013 at 01:29

    Debt has definitely become a plague in the U.S. and in many parts of the world. However, there are signs that Americans are slowly lowering their debt levels. Hopefully this continues.

  237. Malori says 27 April 2013 at 15:30

    This is a great article and I love that the “smallest balance first” method is recommended. Personal finance is mostly about behavior modification, and just knowing the math is not usually a good motivator. I’ve been using this debt snowball method for 2 years now and have paid off $50,000 so far!

    Malori

    • molly says 13 May 2013 at 15:57

      great JOB

  238. Harry S says 12 May 2013 at 08:17

    The reason why most people find it difficult to get out of debt is that they are not willing to dig deep when it comes to managing their finances and end up slurging all of their income which leaves them with little or no money to pay off towards their debt.

  239. James says 24 May 2013 at 05:00

    This was an interesting read for sure but it was mainly aimed at Americans (I’m sure that’s your main audience obviously) but I just wanted to direct you to a similar post for UK readers mainly living in Scotland with more tips debtfreescotland.org.uk/debt-advice-detail/10/How_can_I_get_out_of_debt_fast

    I’ll be coming back here more often to keep track of your journey,

    Paul 🙂

  240. My Site says 24 June 2013 at 10:12

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  241. mysensiblecent says 20 December 2013 at 01:28

    Debt is the main hinderance to financial freedom. avoid new debts, save for emergency and tackle your debts aggressively, i love this.

  242. Ben says 11 January 2014 at 06:36

    I do everything I can to avoid renting a car for that reason. It’s appalling to me that there is an entire industry that won’t do business with MONEY, only credit. You are mistaken that you can’t use a debit card though. Many places will take your debit card but they will put an extra $200 (or so) hold on your funds. Still maddening so I just try to avoid them altogether.

  243. George says 14 April 2014 at 20:12

    Obviously debt can be a scary thing, owing more money than you’ve ever seen isn’t anything to be thrilled about.

    Personally, I owe around 30,000 dollars in student loans, I’m also a college dropout. So safe to say I’ve felt overwhelmed at times.

    Really though, I’m thankful for my debt, it’s amazing how much it has taught me about being happy.

    Yeah that’s right, happy. Being in debt doesn’t mean you’re not living now, you can’t allow it to be an excuse for you to put life on hold until you get it together and pay it off.

    5,000$ in debt, 30K in debt, free of debt, you’re still human and living still comes before everything else. Yes, if you’re in debt, be frugal, learn to find joy in things that you don’t need to spend a pretty penny.

    But don’t live your life with a number hanging over your head. Don’t let your debt define you. Worry about taking control of your life, and your debt will solve itself along the way.

  244. Lee Jones says 22 May 2014 at 10:27

    Agreeing a time to pay arrangement with your creditors over a period of years my help. The creditor should agree not to take any legal action against you on the understanding that you carry on to honer your payment plan.

  245. Praveen says 14 July 2014 at 04:07

    There are mixed reviews on dave ramsy’s get out of debt plan.

  246. Todd says 21 August 2014 at 00:18

    Can you use the “Visa” gift card(s) to rent cars or make various types of reservations online and/or in person? If you can’t or don’t want to use cash or a bank debit card.

  247. Me says 22 August 2014 at 18:41

    Most banks will offer a card that works like a credit card. Hotels and car rental companies will accept it, it works like a credit card, but cones out of your chequing account

  248. John Green says 18 September 2014 at 16:37

    Finally someone else that agrees on cutting up the credit cards. I mean, I get that you can use them to start building credit back, but if you could control spending, you wouldn’t need to. In my opinion, cut them, destroy them and pay them off before thinking about another one.

    Chance are, even after paying debt off, you won’t be doing yourself a favor to get another.

  249. Artistic4 says 12 January 2015 at 07:00

    Some quality ideas. For the balance transfer, try a credit card at a credit union. The balance transfer is free and the rates are typically lower than banks.

    Also, batch your errands. It can save a lot of gas and time when you run several errands at once. Seems like a no -brainer, but you’d be surprised how many people run errands willy-nilly.

    Remember to reward yourself when you reach a goal or send extra $ to pay off your debt. The small things matter! An extra hour of downtime, a hot bath, an evening of reading or a movie, an ice cream cone or that one latte this year all make for solid rewards. Or make yourself a sign to remind yourself all week long you just sent an extra $35 in to pay off your debt. It helps.

  250. lmoot says 12 January 2015 at 07:05

    The obvious solution would be to stay out of debt, especially on a low income. Making not very much money early in life (and still), has been a blessing in disguise for me. Last year I earned 25k more than I was earning when I bought my house over 5 years ago. And I bought less house than what the banks told me I could afford, specifically because I was earning a “low income”. So not only am I paying a mortgage expected of someone earning much less than I currently do, but even less than that since I only borrowed 55% of what the bank was willing to lend (over 100k on a less than 25k salary!).

    Anyway. As someone with now an average income, and never expecting to make more than $30-50k from active income, I’ve made it my goal to focus on guaranteed savings/ investments. CD’s and working to pay my mortgage off early. Other than matching my company 401k match, and one day hoping to max my ROTH contribution, I don’t want to focus what I do have on playing market games. Perhaps if I had much more disposable income I would. And not to say that investing is not for low/average income earners, just that I’ve made the decision to keep it low-risk and simple. It’s always served me well and keeps my expectations realistic.

    One area I’ve always had a problem with is food. Cooking is not something I’ve practiced enough to have a mental list of on-hand recipes, so it still takes effort for me to cook, and so I don’t. I want to change that as I spend way too much money (and calories) eating out. Not something I can afford on my budget, AND meet my goals at the same time.

    I would also include student loans on your list. Many people’s student loans are bigger than their car loan…or my mortgage! Not everyone is lucky enough to avoid student loans. I did, and I list that as one of the top reasons why I’ve never despaired over money after graduating. I didn’t need to feel the burden of having student loans, in order to enjoy how goooood it felt starting my adult life in the black. Not just financially, but mentally it provided me confidence going forward, and encouraged me to keep my finances in good standing.

    It seems that some people with large student loans upon graduating might get an “oh well” attitude, and continue to add to the pile with other debt, making the additional debt less glaringly obvious. What’s a fly in a pool of leaves?

    • lmoot says 12 January 2015 at 07:19

      Well I got caught up in my own psycho-babble and forgot to list my course of actions.

      In 2009, within 2 wks I had both a mortgage and a new car loan (neither of which I’ve ever had before). My car died 2 wks after closing.

      I:

      1) I paid the car off in 9 months with the FTHB check I received with my tax return. It was money I was going to use towards renovating the house, but this new debt was a priority to me—especially after I calculated I was paying $100 in interest each month!

      2) I used minimum services and electricity. Only internet no cable, utilities (water, trash and electric) stayed under $100.

      3) I only used 0% interest debt. I financed most of the renovations this way. It allowed 100% of my payments to go towards principal (which goes down a lot faster when you’re not paying interest) and I just paid it off in full before each promotion expired.

      4) I renovated the detached studio on my property first so I could rent it out ASAP. My first tenant (best friend) financed most of the renovation and ended up living there for 2 years while attending school.

      5) I got a part time job I enjoyed, and which offered benefits that saved me money….benefits like being able to visit nearly every major attraction for free.

      6) Moved in with my grandmother last year and rented my house out. The tudio is currently being used for storage and needs additional work, but I intend to lease that out as well eventually and put the things in storage.

      I would say for someone on a limited income, definitely earning more is the best option, but not just earning more….earning different streams of income as well helps to hedge against things like job loss.

  251. Britni @LazyGirlFinance says 12 January 2015 at 07:22

    This post makes some really great points about reducing expenses. Like losing that last ten pounds, it’s never easy to squeeze that last ten dollars out of a budget that is already so tight that it squeaks. But there are ways. It just takes the energy to put in that extra effort.

    My only criticism is that this post doesn’t really get into another great way to reduce debt – increase income. In the first line, the post mentions selling stuff, but that’s not the only way to make money. Desperate times call for desperate measures, and a second job might be the answer.

    When I graduated from college, I couldn’t find a job in my field (engineering) until more than six months after graduating, despite spending hours looking every day. Instead of continuing to rack up even more credit card debt (I was already under a mountain), I moved into my aunt’s basement and took a job as a sales associate at the mall. It was about the last thing I wanted to do at the time. But it was necessary, and it worked.

  252. KT says 12 January 2015 at 07:26

    This reads pretty inauthentic. I think if you publish this sort of article, it needs to come from someone who has lived in and succeeded–like Donna Freedman, who handles this material with real anecdotes to back it up.

    • Johanna says 12 January 2015 at 10:46

      I agree – especially because the article goes straight for the tired old stereotype that if you’re poor and in debt, it must be because you don’t care enough. It reads like somebody came up with this idea for an article, and then the author had to scramble to come up with things to say.

      I don’t have any first-hand anecdotes to share either. But I’d say that the first step for someone in debt on a low income (or any income, really) is to figure out how bad their situation really is. Add up all your necessary monthly expenses: housing, transportation, insurance, basic groceries, the minimum payments on all your debts, any other payments that you must make every month and can’t postpone. Compare that number to your monthly take-home income.

      In a sustainable spending plan, “must-have” expenses should make up no more than 50% of your take-home income. If you’re struggling with money, you’re probably nowhere close to that figure, but how far off are you? If you’re at 70-80%, determination and a few tweaks may be enough to dig you out of your hole. But if you’re at 100% or more, your next best option might be to meet with a bankruptcy attorney.

  253. Lux Ganzon says 12 January 2015 at 08:23

    I like these tips! Right on the spot. Some people say they’d only be able to get out of debt if they earn more. Not true.

  254. Rich Harris says 12 January 2015 at 08:40

    Dave Ramsey is right: You need a bigger shovel. It is a very rare person who has small income and large debt. Unless you have had a bad reduction in income, chances are the low-income debtor is drowning in what would seem a trivial problem to the high-income debtor.

    The GOOD news for the low-income debtor is that any old second income will help a lot. Dave Ramsey often refers to “The pizza delivery job.” The person who makes 6 figures and is 7 figures in debt will not make significant headway with an extra $200 a month. But the low-income person who adds that much income (10 hours per week at minimum wage) AND APPLIES ALL OF IT TO DEBT REDUCTION can pay off $4000 in debt in less than two years, and $4000 probably pays off at least one monthly bill for a low-income debtor. 🙂

    • sarah says 12 January 2015 at 10:01

      I agree. I grew up with parents who were low income and at one point under a lot of debt (job loss, debilitating injury, 80s real estate crash, balloon payment). The only options were to work more and/or not spend money on ANYTHING if it was avoidable.

      Now I work with folks on social security and when you only get $721 a month and your rent is $600 (the cheapest you can possibly find here, probably a shared room in a terrible neighborhood), owing someone even $500 is a nightmare. For someone like that, selling plasma or ringing the bell for Salvation Army or something like that can be the difference between being solvent and going under.

    • PawPrint says 12 January 2015 at 16:07

      I’m not sure I agree with your first sentence. My daughter has a low income and a lot of student debt. In fact, her student loan debt is about three times her annual income. From what I read, she’s not the only one in this situation, although the author of this article doesn’t mention student loan debt.

  255. Chelsea @ Broke Girl Gets Rich says 12 January 2015 at 08:59

    I’ve been on a low income (like, really low) for the last four years, and was able to pay off a used car purchase and keep myself out of any other debt.

    It was probably much easier being single and not having to feed someone else, but it’s definitely possible. For me, a big part was learning to cook from scratch and not buying the convenience foods in the grocery store. It turns out chopping your own carrots can save you a wad of cash over time (and staying away from canned is much healthier too).

    Another thing that helped me manage my low income was moving somewhere with a lower cost of living. I had the upfront costs of moving, but they paid for themselves within two months in rent bills alone.

  256. Britni @LazyGirlFinance says 12 January 2015 at 09:20

    When I graduated from college in 2010, I had no job and a huge credit card balance. Due to the crummy hiring conditions at the time, it was more than six months before I was able to get a job in my field.

    Rather than continue to dig myself deeper into debt, I made a huge lifestyle change. When the lease ended on my college apartment, I moved into my aunt’s unfinished, unheated basement. The living conditions were terrible, but she let me live there rent-free, and I am very grateful. I got a part time job at the mall to cover basic expenses and start attacking my CC debt, while continuing to look for a full time job. Cutting living expenses and getting an extra job was all I could do to keep my head above water.

    Eventually, I did get a job in my field which paid pretty well, and I was able to pay off the remainder of my debt in time. It would have taken even longer if I hadn’t changed my living situation.

    • Mark Battle says 10 February 2015 at 06:48

      Britni, well done. I haven’t had to go through what you have being that I married early and any schooling I took I was able to pay along the way. I still have to pay my wife’s school loan ( which I told her I would ) But I think GOD has been pretty good to me. I have a very good job that pays me wery well. I am shooting to pay off the car loan, then the school loan, after which we should be able to relax a bit. But I digress. Reading your story humbled me AND impressed me to act sooner. Well done.

  257. JS says 12 January 2015 at 09:46

    When I first got out of college 20 years ago, I had to go pretty extreme. But I put something in savings each month, even if it was less than $100. I chipped away at my debt – paid off my small car loan first, then tackled the student debt. And while in those first few years I never made a ton of money, by the time I met my wife five years later I was debt-free and had a pretty nice sum in the bank. It was a matter of paying off one debt at a time, never letting my lifestyle inflate with my paycheck, and keeping some emergency funds set aside.

    I credit the following with my success; as you can see I echo some of the comments already made above:

    1) Strict budgeting. I still had fun with friends, but it was cheap fun. I volunteered with friends. We got together at each others’ houses instead of going out. Etc., etc.

    2) I started giving to my church and never stopped.

    3) I learned to cook. I took this to somewhat of an extreme – my wife still makes fun of how I could cook a lasagna and eat it for five days straight back in the day. But that saved a huge amount of money over the years.

    4) I am an extreme gearhead, but I did not buy a flashy car until I actually had the money, and had already figured out the finances for a house. Then I bought a slightly used Mustang GT. It was worth the wait and felt a lot better doing this when I was well-established than it would have to go into hock out the wazoo freshly out of school.

    5) I had no cell phone, and no cable/satellite TV. At one point I didn’t even have a TV and I didn’t care.

    Today, we are a family of four. No debt save the mortgage and car loan, and my wife gets to stay home with the kids. If I hadn’t tightened my belt early on, I would never be living like this now.

    • Amanda says 06 April 2015 at 12:56

      #2 was a mistake. Giving money to your church is just throwing it down the toilet. What a waste!

  258. Casandra says 12 January 2015 at 10:08

    Fantastic tips. These decisions can be really hard to make but getting out of debt is a huge win. Although some of these suggestions, such as moving, cost money up front, they can have a tremendous impact in the long run. There can also be quite a bit of room to negotiate with credit card companies – and it doesn’t cost anything to try. Call your credit card company and ask them to lower your interest rate. If a big expense pops up, call them and ask them about postponing or derring payments. As Lisa said, the worst they can do is say no – but it’s in their interest to help you!

  259. Scooze says 12 January 2015 at 10:11

    I agree with the above poster that this article is very light on ideas for saving money. How about some examples? I like Lisa’s articles, but this one doesn’t really work.

    There are so many possibilities, like cutting cable, cell phone plans, downgrading cars, etc.

    • Barb@livingrichlyinretirement says 12 January 2015 at 23:53

      I agree with the other poster. Many poor people or people living on a fixed income have already gotten rid of the low hanging fruit. They need more extreme solutions. If they already have moved down to a single car/no car, can only afford to eat at home, never get lattes, and have rabbit ears, they need a deeper level of help.

      and frankly it’s not just the poor. I’m a retiree on a decent fixed income. If I had a serious crises I would have to dig deep. I already don’t buy lattes, am not into clothes, am part of the compact, eat at home, have a use

  260. lmoot says 12 January 2015 at 10:42

    Personally I don’t mind these types of articles as long as there is a call for response like this one does. Most the GRS community is too advanced to require every article to “teach us the ways”. For the newbies there is a plethora archived material.

  261. TT says 12 January 2015 at 10:57

    You need to concentrate on what is working in your financials. Take baby steps and pay the easiest payable debt first, to get the snowball rolling down the hill. Changing habits is the only way of getting permanent change. To achieve the change you need to define the first action that is as easy as possible. Just start with 1$ first. The next steps will be easier. Do not try to bite more you can chew.

  262. Laura says 12 January 2015 at 11:18

    Re: some of the criticism that Lisa hasn’t lived it and/or is light on ideas – my reading is that this is an article for people who have ALREADY cut the cable, downgraded their transportation, wear only second-hand clothing, have the cheapest cell phone plan available, etc. How do you get out of debt when you have very little left to cut and comparatively little income? I agree that (1) you have to be willing to truly suck it up, which is very hard to do when you HAVE been sucking it up for years and years and years, and (2) REALLY go through the spending and be willing to do some uncomfortable things. Some will say that the person wouldn’t be in debt if they had actually sucked it up before, but people can indeed be on very tight belts and still have debt for non-frivolous reasons: e.g., student loans, an ex-spouse charged up the card before hitting the road, medical debt, and using the credit card to buy food for your children because you’re out of cash. So I’m not going to judge.

    Paying off debt on a low income requires thinking way outside the box. I would add to the list: (1) Look at any government programs you qualify for, then put any savings towards debt. (2) Avail yourself of food pantries and other charities, again putting savings towards debt; you can keep track of the savings and when times are better, donate that amount or more back to those charities. (3) Look for any barter situations you can come up with. Can you trade a skill you have for someone else’s? I once traded filing/paper organizing for a free massage. A parent might trade babysitting time with another parent. (4) Can you get quick gigs such as odd jobs off of Craigslist, or temp work? (5) Check out Debtors Anonymous for emotional support that you most likely really need.

    One big problem is that people with money debt often have time debt too. In our society, time = money (used to be land = money) so if you don’t have more time to trade for money, your problem is compounded. Do the best you can with what you’ve got.

    I would also add, (a) surf the internet for ideas of how other people did this and see what works for you, and (b) don’t get demoralized or see yourself as a failure; “economic recovery” or not, there are still a lot of people in bad straits and you’re one of many, not somehow special in a bad way.

    My $0.02, k-chink.

  263. Jacque says 12 January 2015 at 11:45

    I agree with the general sentiment of the comments, this article missed the mark.

    But I WOULD like to give a hearty shout out for cloth diapers! After gifts, my husband and I spent ~$250 on new and used diapers and supplies last year. Our little one is almost a year old and they should continue to fit her through potty training and work for any future siblings as well. Even if we changed our minds and decided to stop, their resale value used is ~$400 so we could potentially MAKE money off of diapering!

    While I appreciate each family has different situations, it frustrates me to no end to listen to parents complain about their finances when they are shelling out a small fortune on formula, packaged baby foods, diapers, wipes and diaper creams every month!

    • Sherry says 12 January 2015 at 12:53

      To Jacqui’s list I would add using cornstarch instead of baby powder, plain unscented almond oil (provided nobody’s allergic) for not only baby but adults as a skin moisturizer, cider vinegar watered down to use as both a hair rinse and detergent-remover in the rinse water for laundry…. The list goes on. There are innumerable self-sufficiency sites out there, and if you’re not out every evening working your second job (like I often am) take some time to look online for them. Years ago, Amy Daczyn (sp?) published a book called The Tightwad Gazette and Carla Emery did her Old Fashioned Recipe Book (which was about a lot more than just cooking).

      A last suggestion my friends get a kick out of is, given my water heater is at the far end of my house from the kitchen, I remind myself I don’t need hot water for absolutely everything (like rinsing out a cup or giving my hands a quick wash) so I’ve rubber-banded a dollar bill around the hot water faucet.

      As Dave Ramsey would call it, “visual aid” and the more aware I am of the blessings I have, the less careless with them I become.

      • stellamarina says 12 January 2015 at 20:31

        Re the water heater. With power prices here in Hawaii three times the cost of average on the mainland US, we have a timer on our water heater. We used to have it on for two hours in the morning and two hours in the early evening but now that it is just me in the house I have the hot water turned on only for two hours in the evening. I shower and do my dishes then. If I need to wash dishes in the day I will heat up some hot water in the kettle. I think it stops a lot of wasting water as well. Usually there is enough warm water in the tank for a warm shower in the day time as well.

  264. Milissa says 12 January 2015 at 13:42

    After our youngest child incurred almost $1 mil in medical bills last year, our savings was wiped out. We had good insurance and only had to pay the maximum out pocket, but it still took us down.

    Not long after that, my husband lost is job. We do not partake in cable, internet, cell phones, movies, vacations, lattes, or the rest of the normal stuff people tell you to budget out.

    At a certain point there is simply nothing you can do except eat less food and go to the food pantry. I work full time and my husband is looking for any job available.

    Thank goodness I cloth diaper and use washable cloth wipes. There is no way we could afford disposable diapers. We (4 persons) live in a small 2 bed, 1 bath 900 sf townhome. Our 1990 car is paid off. Last year I had a very small garden in our 150 sf backyard. I hope to plant a large one this year so we can eat better.

  265. Brenna says 12 January 2015 at 15:56

    During and after college, I became quite frugal. While my situation is deemed almost a ‘stage in life’, I had to work a bit harder to get by with no help from outside sources like other college kids get.

    A few things I did (disclaimer: some not always the most ethical, but they helped me get by!)

    – I took toilet paper from the public restroom my apartment’s front office, campus, etc. (dire straits) My campus also gave out free feminine products and other necessities, which I took advantage of a bit too much. I hoarded ‘freebies’, ketchup packets, etc. Never…technically illegal.

    – I cooked a lot of pasta and beans, and used primarily spices to ‘spice up very basic and cheap foods

    – I walked a lot instead of driving — sometimes a couple miles just to hang out with friends for the night. I could save a whole tank of gas a month by doing this.

    – I wouldn’t buy most food if it wasn’t on sale or I couldn’t find a coupon — this included ‘cheat’ day on my budget by ordering pizza

    – I did freelance work in addition to working a job

    – I tried to find the most effective jobs — at my age and without a degree yet, housekeeping or waitressing were the most lucrative

    – I never bought alcohol or other guilty pleasures — I’d host get-togethers at my place so I had to go out less (and in return there were a lot of leftovers at my place)

    – I found the cheapest possible housing, had endless roommates, and at one point lived in government-assisted housing

    – I had a friend go on food stamps when she needed it, and it helped her out a lot during that time in her life. My situation wouldn’t allow because I was a dependent technically, although I didn’t get financial help directly

    – I asked friends who weren’t as in bad of a situation for rides (or just to drive wherever we went)

    – I made sure to get an apartment that offered as many amenities free I would spend money on anyway — like free gym membership or gym area.

    – I took advantage of my college campuses resources even after I wasn’t in school anymore. One year I lived within walking distance to campus so I had no Internet and went on-campus for that. I went to the library for entertainment, used free refills on drinks at campus dining — at one point I even had a friend that lent me ‘free meals’ because he had a meal plan that had meals always going to waste anyway.

    – At my new job, I always drank coffee/tea at work, and never bought my own. There are a few other incentives that I take advantage of as well.

    – I also tried to plan out as carefully as possible my errands. This caused less trips to the store, more coupon/discount usage, and avoiding buying things I don’t need.

    – I never ended up taking advantage, but a local church of mine gave out free meals — food they got as free donations that were leftovers from various grocery stores in the neighborhood. It wasn’t a religious based event, and was open to everyone. There are likely organization that do this elsewhere as well.

    – I’ve thought of donating plasma/blood/hair but never got around to it. I had plenty of friends that did. When you’re really desperate, just plasma donations alone can cover most of a cheap rent!

  266. Emma | iHELP Student Loans says 12 January 2015 at 17:43

    You’re making a great point about the discomfort involved in getting out of debt. It’s going to be extremely uncomfortable for a while, but being debt free is ultimately worth it.

  267. Kalie says 12 January 2015 at 19:36

    Great ideas. Getting hand-me-down clothing (for children and adults) and buying used items instead of new whenever possible is helpful.

  268. Wiggles @ FirstYouGetTheMoney.com says 12 January 2015 at 20:30

    A few little tips I can share:

    Stop buying paper towels and use reusable rags and clothes. Or keep the paper towels out of sight so you don’t instinctively grab them every time you wash your hands.

    Wash your clothes on the warm setting instead of hot.

    If your work offers free coffee or tea, wait until you get to work to have your morning caffeine. I have saved hundreds of dollars per year not buying my own coffee.

    Use a personal finance software like Mint.com. It’s a great way to track and analyze your finances to see where you are overspending.

  269. Slackerjo says 13 January 2015 at 14:15

    All the low income workers I know (myself included) can’t re negotiate a mortgage because we don’t have mortgages.

  270. diane @smartmoneysimplelife says 13 January 2015 at 15:22

    This paragraph is key:

    “But whether you are finding ways to make more money or squeeze more out of your budget, it takes a lot of energy. The problem when you are stressed or overwhelmed with debt is that you may not have energy. If your debt is because of bad personal decisions, you may continually berate yourself, which is also an energy-zapper.”

    If you don’t acknowledge this and actively work with it in mind it can undermine EVERYTHING you do.

    At one point in my life, that was me, it was all too hard and as a result, I was getting deeper into debt. Once I acknowledged my defeatist attitude and chose to view my situation as a challenge to my ingenuity rather than a punishment for my lack of attention – everything changed. It became a game I played against myself. How cheaply can I eat this week? What’s the most nourishing assortment of food I can buy with my $10 food budget? How little can I drive this week? You get the idea… It made a huge difference to my life and years later, I still play this game regularly.

    • Xavier says 01 September 2016 at 23:37

      I like that

  271. Ruth says 14 January 2015 at 05:39

    We debated selling our second car but are currently renting it out on Relay Rides. It now pays for its own maintenance and earns us extra income!

  272. Hope says 14 January 2015 at 11:55

    Possibly a bit gross, but a great tip for women I found years ago and have been using ever since–if you can at all possibly afford it, get a Diva cup or moon cup. Sanitary napkins/tampons are expensive, and once you’ve bought a cup, it’s another bit of money you can divert into savings/debt repayment–every little bit adds up!

  273. Erin says 24 January 2015 at 18:57

    It may seem counter-intuitive, but I would also build up some minimal cushion of savings. I was in this position years ago, with $7k on a credit card and a lousy job. I was bicycling everywhere and lived in my friends’ dining room, and putting every dollar I could towards paying down that debt, but it never seemed to get my anywhere until I actually pulled back a little bit and started putting something into savings. The problem was that anytime I’d start to make progress, something would come up that I needed to put on the credit card again, because I didn’t have any cushion at all built into my budget! This became crystal clear after a bike accident landed me in the hospital, adding another thousand to the credit card. After that I changed my strategy, and found that when I had even just $500 in my savings account my progress on paying down the debt actually got faster.

  274. Beard Better says 27 January 2015 at 08:39

    As a graduate student I am chronically low-income, although luckily I have an in-school deferment on my loans (all of which are subsidized). As cliche as it sounds, the two biggest things I’ve done to try to save up money to be able to pay off my loans before they accumulate any interest has been to batch cook my own food and refuse to own a car. I also acknowledge that I am extremely lucky to have the parents I have, who helped me out a lot when I moved.

    While not everyone can go totally car-less, everyone who lives in a college town absolutely can. Between the cost of gas, maintenance, insurance, and parking, not to mention the hassle of traffic, it is totally incomprehensible to me that so many people prefer driving. I do pay a premium of ~$75 a month in rent to live close enough to public transportation, but when private parking lots within a block of my apartment charge over $100 a month I think it still works out drastically in my favor.

  275. Douglas J says 31 January 2015 at 14:36

    A few have posted to this effect, but all those suggesting we cut the “low hanging fruit” really seem out of touch. Volume discounts, store-brands, etc. are irrelevant posts to a forum like this. We are already doing those things.
    Many live where bus systems operate on daytime hours, very limited after-hours and weekends. No holidays either. It is very hard to be considered for hiring if you cannot work evenings, weekends, or holidays. That’s assuming you live somewhere with public transit at all. Getting rid of the car is not an option.
    House sharing was been great. This cut rent in half just out of school. After buying, it has provided a steady source of cash to defray costs. Just make sure you have month-to-month rental contracts and it’s with someone you trust. Otherwise, it can be a real nightmare.
    I found the “game” approach worked for me. I made it a self-competitive game to see if I could reduce my grocery bill each successive month. If I could use less electricity compared to previous year. If I could get better mpg while driving to work. Etc. This helped me to find efficiencies.
    As one item was crossed off my debt list, I went on to the next and used most (not all) of the freed up cash flow.

  276. dan says 04 April 2015 at 19:14

    over 130,000 in debt plus utilities taxes food health benifits that sre only good if your healthy and even the its to expensive etc.
    one income at 26 per hour and not always a 40 hr week

  277. Jason@WinningPersonalFinance says 15 January 2018 at 05:17

    I’m a fan of the avalanche method myself. The math nerd in me would hate to put extra payments towards a lower interest loan than a higher interest one. The avalanche method will also get you to be debt free the earliest. I can see an exception if cash flow is an issue. In that case, the freedom from completely paying off a loan or two does have a huge benefit. If you don’t need the extra cash flow today, use the avalanche method and become debt free ASAP.

    • JoeHx says 15 January 2018 at 12:30

      I’m the same way – I see the numbers before I feel the emotions. So paying the debt with the highest interest rate is the most motivating for me.

    • Don says 05 March 2018 at 17:52

      So, if you are a “math nerd” why or how would you get yourself into debt in the first place? Paying more for something than the already HIGH “retail” price sounds mathematically stupid too doesn’t it?

  278. BusyMom says 15 January 2018 at 06:27

    “Once you’ve listed your debts, decide how much you can afford to pay toward them each month in total.”
    Think of that as you minimum, and try to pay off more than that every month. May be turn it into a challenge for yourself. I have gone through periods of my life when no amount was too small, every single expense was scrutinized and evaluated. Every cent that could be spared went off into paying the debt. I thought of it as fighting a war, and that was a war we won!

  279. Joe says 15 January 2018 at 06:50

    Wow, psychology is such a huge factor. I didn’t know people feel lost once they’ve paid off their debts. That’s very counter intuitive to me.
    I think financial security is probably a better goal. If that’s your goal, then paying off debt is just one of the steps.

    • S.G. says 15 January 2018 at 15:27

      Paying off debt is just like any goal. Once you achieve it you can feel adrift for a time if you don’t have your next goal lined up. It’s not unlike graduating high school/college and not having a plan for a job.

      • S.G. says 15 January 2018 at 15:28

        Or, more appropriately for this forum: Retirement without having a plan for your time.

  280. Dave @ Married with Money says 15 January 2018 at 06:57

    I’m not surprised at people generally feeling lost or seeking help. It makes sense to me – it’s uncharted territory.

    I’d be curious to know what percentage of people feel down/depressed after paying off debt. If they’re truly without purpose in their financial life, like you suggest, that number could be high. But I am guessing many people are probably of the “Okay this is awesome, I’m seeing great results, but now that I’m out of debt, I don’t know what’s next. Someone please help me and let’s keep the good times going!” camp. I was, anyway…

    • Jan says 18 January 2018 at 12:05

      We went from debt crushing to savings crushing. We took the same time and energy to establish accounts for the things that took us into debt: cars, house repairs, education, travel and gifts. Those are now fully funded, with rolling money monthly, we have moved on to just enjoying retirement.

  281. Dave @ Accidental FIRE says 15 January 2018 at 07:13

    I’m not in debt myself but my friend followed the Ramsey Debt snowball method and it worked pretty well for him. Attacking the low hanging fruit first did help him feel like he was actually getting something done, so the psychological trick worked for him.

  282. brian @ singledadmoney says 15 January 2018 at 08:11

    My overall goal is boosting my savings rate, which pretty much makes all other items fall in line (debt repayment, spending, saving, investing), but I did need the psychological “brain training” of the Ramsey snowball method to really kick off the new change in my thinking about money. I looked at the math too, but figured any extra money with regard to interest rate, was justified by considering the extra money spent as education expenses. It was a relatively cheap degree!!! I gradgeeated a few days ago and have multiple diplomas (letters from various creditors stating my account has been paid in full).

  283. Michael says 15 January 2018 at 09:37

    I feel like the Ramsey method is best for most people because while paying the high interest off sooner is nice we generally make not smart decisions. I do feel for me being a very analytical mind paying off the highest interest first is best for me. Since Finance can be psychological this is why Ramsey method can work quicker giving you a reward sooner giving a better positive feedback loop.

    On the debt being a side effect I dont think that is the case.Sure saving can lead to debt reduction but it can lead to asset build up or savings. If your priority isn’t to pay off the loan you may be tempted to put in savings or 401k which in general would earn less than most loans accrue. This can be extremely bad if you make min payments then something bad happened to you such as losing your job. Because then you have to dip in 401k pay penalty.

    Also, I think one should have active goals and target goals.I liken it to a ship you can have action goals that turn the ship and target goals that act as landmarks to see you are on the right track. With these, you can adjust or maybe question why are you not there.

    I think if you don’t have targets your actions might be the wrong ones to take especially on more abstract goals where the actions may not be clear for the end result you want. Conversely, if you have a goal of pay all my debt and don’t set actions you will have a hard time getting there.

  284. Jean says 15 January 2018 at 11:46

    I have never had an issue with debt, but I don’t understand why the Ramsey snowball method is so popular and why people in trouble default to this. I would think that watching your total debt drop more quickly would provide more satisfaction than seeing the number of creditors fall. How can you reconcile continuing to pay off acounts but seeing the amount you still owe remain high because the accounts with the higher interest rates continue to grow?

    • J.D. says 15 January 2018 at 11:50

      Because, Jean, if your highest-interest debt is your highest-balance debt, the process can seem to take forever. This was true in my case. I read all the books that said you must pay off your high-interest date first or you’re an idiot. So I tried it that way many times. Many times, I failed. I never seemed to make a dent. But the very first time I tried the low-balance method first, it was a revelation. I snowballed my way from start to finish. Many many others have experienced the same thing.

      This works because humans are not computers. We are complex psychological and emotional creatures. If we were purely logical, none of us would ever get into debt in the first place! Folks like me get the math. The math is easy. It’s the psychology that can be tough.

      Plus, let’s not forget that the actual dollar difference between the low-balance first method and the high-interest first method usually isn’t much (as a percentage of total debt).

      • S.G. says 15 January 2018 at 15:26

        Plus: paying off debts changes your cash flow. Even if the same amount is going to debt it can feel as though you’re paying more because your minimum payment has gone down.

    • Don says 05 March 2018 at 17:57

      Getting the little ones out of the way really did my mind (and budget) a lot of good. It felt awesome to start being smart with money and seeing things quickly drop off my list. I hated the biggest debt the most and that was my driving force to get to that one and get it out of my life.

  285. S.G. says 15 January 2018 at 15:24

    A math geek way of looking at it, especially if cash flow is a problem, is what debt has the biggest difference toward your cash flow. Divide the payment by the balance and you’ll get another number. In your case:

    Computer Loan: $1116 @ 15% ($48 min)….$43 per $1k
    Personal Loan $1600 @ 3% ($100 min)….$62.50 per $1k
    Car Loan $2250 @ 5% ($170 min)….$75.50 per $1k
    Business Loan $2800 @ 11% ($30 min)….$10.70 per $1k
    Personal Loan $6430 @ 0% ($60 min)….$9.30 per $1k

    It’s a different way of looking at it and will often wind up similar to Dave Ramsey’s method because the closer you get to paying stuff off, the lower the balance and the more money you save for paying it off. But if you’re tight and don’t have an emergency fund it can help you address the stress of having the debt if something unexpected should happen.
    Home Equity Loan $21000 @ 6% ($100 min)

    • Michael says 15 January 2018 at 17:41

      Can you give a little more detail on this method? I am looking but I must be missing something how are you getting the numbers for instance 43 per 1k?

      • S.G. says 15 January 2018 at 21:56

        Sure. $48/$1116 is about $43/$1000. Just divide the payment by the number of thousands you owe.

        1000*[Payment] / [Principal]

        • Michael says 16 January 2018 at 15:39

          Yeah I just misread and was doing 1116/48. Also for this method or any of the other methods how would you tackle a loan that is pulled. I have a 282.82 min payment on the total debt but it is comprised of 7 different loans(with different loans and different balances) and I do not have a min on those.

          • S.G. says 16 January 2018 at 19:37

            I’m not sure I understand the setup you’re describing. Can you designate additional payments? Is there anything in your agreement that designates how over payments are distributed?

          • Michael King says 17 January 2018 at 04:24

            For some reason, I cant reply to your comment so I will reply to mine. The loan is 7 loans each with own balance and interest. My provider pools the loans into one loan and figures out a pooled apr then calculate how much it will take to repay over 10 years. In my case, it is 282.39 that is my min payment for all 7 loans. However, You can make additional payments to the loan and dictate which of the 7 it goes toward. Your loan payment first pays the interest then it pays some on each loan(I am not sure how they calculate this) for some it might be 5.34 towards principle. Then the rest goes toward the loan you want if you designate if not it goes toward highest interest rates. But as you pay ahead your loan won’t generate as much interest as first calculated making you pay it off quicker. Also I want to use this method but, it becomes hard when you have each individual loan. Right now I am paying off the high intrest but wonder if it would be better to pay off the smaller ones and increase the cash flow or not.

    • lmoot says 15 January 2018 at 19:26

      That is a cool method! It makes sense even more than the snowball method, b/c different companies charge difference amounts, or percentages for the minimum. So you could have a higher debt with a lower minimum payment, than a lower debt…if the minimum rules/formula for that particular bank, produces a higher amount.

  286. lmoot says 15 January 2018 at 19:20

    I have a different motivation since all of my debt is at 0% interest, minus the mortgage. Due dates. Last year I was close to $50k in credit card debt (I’ve paid off $20k since then, and am now down to close to $30k). I have them ordered by “promotion end date” since all my credit debt (including the $20k I paid off), are at 0% interest. I don’t want to pay it off earlier, because I like earning interest for as long as possible, but I still need to be motivated to save so that I can pay it off when the time comes. Therefore I push myself to save the target amount earlier than the due date (the “complete by” date), so that I can let the money sit and earn in a CD or high yields savings account. The quicker I save up the expected balance due, the longer it can earn interest.

    Here is an actual detailing of my current debt load, in order of due dates. It’s color coded as well, but that won’t show up here:

    1000/5000, Cap 1, complete Jan 2018 (due June 2018) (20% complete)
    0/1000, HD, complete Feb 2018 (due July 2018)
    0/3000, Cap 1, complete April 2018 (due Aug 2018)
    0/7000, Citi, complete July (due Aug 2018)
    0/1000, HD, complete July (due Aug 2018)
    0/6000, USAA cc2, complete and due Sept 2018
    0/1000, HD, Jan 2019
    0/2000, HD, Aug 2019

    • Michael King says 17 January 2018 at 04:28

      I would be careful doing this as it can be riskier if something happens to you. Also, some of them will have some conditions that will change the 0% to a 20 something %, for instance, missing min payments.

      • lmoot says 17 January 2018 at 15:03

        Yes, it is definitely risky. I am very on top of paying the minimums, and saving money to pay it off by the promotional due dates. I’m currently carrying more debt than I normally would because of some expensive and needed renovations to my rental property, But I generally prefer to stay under 50%, even 30% of my total credit card limit.

        I’ve been using credit cards as free short term and semi-long term loans for a while now.

  287. FoxTesla says 15 January 2018 at 22:18

    I continually face this debt-attacking conundrum, with the question of “should I really be attacking it?” thrown in. We do have two auto loans paired with the mortgage, but with the autos being at 1.84% and 2.25%, and the mortgage being both the high balance and high interest at 3.875%, I struggle with the motivation to pay them down when my 401(k)/529/other investments have soared (12%ish gain since 01Jan2017, last time I checked) in the same timeframe.

  288. Windy Taylor says 16 January 2018 at 07:55

    I have always been a saver, but my husband was never taught good financial habits. When we got married in 2009, I had zero non-mortgage debt and he had around $300,000 in debt – car loan, credit cards, law school loans,mortgage and a HELOC on a rental property, etc. You name it, he (and his first wife) financed it. Additionally, he was obligated to pay $1,000 a month for five years in alimony, which we imagined as the financing for the world’s most beautiful invisible BMW.

    We used the Dave Ramsey debt snowball, because I listened to his radio show. It took us five years to pay off everything but the mortgage on the rental property, and we sold that property in 2015. I used a spreadsheet to track each month’s payment and the outstanding balance of every debt we had. I would definitely use this method again, and would recommend it for less math-nerdy types. If you’re not great with money to begin with, you’ll be less motivated by a math-intensive explanation of how to order your debts, and perhaps more motivated by the quick win of paying off a small debt fast.

    The #1 piece of advice I’d give to someone just taking the helm of their financial ship is this: Play the long game. Don’t think in terms of month-to-month. Plan one year, two years, three years out. Also, have an emergency fund. Lots of small stupid nonsense can derail your debt-reduction habit, and a couple thousand in an emergency fund insulates you from a lot of small stupid nonsense.

  289. Bonnie says 16 January 2018 at 10:31

    Thanks so much for this article, JD. My highest-balance credit card is also my highest-interest rate card, and so I’m currently attacking the smaller one. The psychological aspect of it that you mentioned is very real. The higher-balance one seems almost insurmountable to me right now, but I know it will seem more doable once I can knock out the smaller one.

    • S.G. says 16 January 2018 at 12:25

      Good for you!

      Honestly, the best advice from this isn’t which to do first it’s “Pick one and pay any extra money to that one until it’s gone. Repeat.”

      • J.D. says 16 January 2018 at 20:19

        EXACTLY.

  290. Lynne says 17 January 2018 at 07:05

    I’m finding that I really want a “Like” button with many of these comments.

  291. Laurie says 17 January 2018 at 08:56

    Great thoughts in this article. Just like losing weight or quitting smoking, finding the right way for is first step to success. I loved how you provided various paths to paying off debt. It really does come down to psychology of each person. Look forward to your continued articles/thoughts.

  292. Kiki says 25 July 2019 at 16:36

    I like that you put it as a target and not an obsession. I used Dave Ramsey when younger and was made deathly afraid of student loans so I wound up not finishing college. Now I’m finishing college and once finished will get a job that pays around $20k more than what I make now. I’m sorry but I wish I’d have been more willing to take out a $15k-20k loan and get a higher paying job instead of the decade of $12k-15k a year. I make around $40K now (only for a year and a half and was lucky to get it). So I like how your approach is less obsessive and just a target. Something to happen along the way and not obsess over. Thank you.

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