Get Out of Debt

In my last post, I wrote about the problem with debt. Now that you know why debt is poison for your financial health, we’re going to talk about solutions. Warning: the steps I’m going to provide are simple but not easy. They will take determination and sacrifice, but if it’s important to you to get out of debt, here is a way to do it.

The steps I’m going to cover come from the book, The Total Money Makeover, by Dave Ramsey. It is a New York Times Bestseller and Ramsey hosts a radio show with 13 million weekly listeners. He has personal experience with how damaging debt can be and knows what he’s talking about. 

Step 1: Set up a budget. What is a budget? It is how much money you have coming in each month and how much money you have going out. Why do you need it? If you don’t know how much you receive and how much you spend, you won’t know if your plan to get out of debt is working. You need a budget to track your money and the progress (or lack of) you’re making.

I use Excel spreadsheets to cover family income and expenses with categories such as groceries, restaurants, merchandise, gas, automobile, health and medicine, utilities, phone, Costco, and donation. I know; you’d rather have a root canal, but trust me, it’s not as daunting as it sounds. There are many digital resources out there to help you. Your bank or credit union probably has a budgeting tool. Mint is a popular app which is recommended by PC Mag, but there are others. One possible upside to being a college student is that you might not yet have a family to support so you have fewer expenses to track. The flip side is if you haven't started in your career, you also have less income to cover those expenses.

Go over your budget every month, religiously. It's the only way to see how your plan is working, and yes, the plan is to wipe out your debt. 

Step 2: Once you have set up a monthly budget, you want to work on developing a $1000 emergency fund in a savings account. Why do you need an emergency fund? Because life happens: a transmission goes out, a wisdom tooth needs to be yanked, your best friend just split up with a significant other and needs you to fly to Michigan to console. If you don’t have an emergency fund, you are stressed and your financial plan is ruined.  

How do you save for an emergency fund? Here are some ways to do it in four months. Or get a side gig. 

In my next post, I’m going to cover specific debts and how to start knocking them down.