Conquering Your Debt

SAVE. Another four letter word and one that too many of us avoid. Save for emergencies. Save for a vacation. Save for college expenses. Pay off your home early. Save for retirement. Chances are that by trying to do them all, you will do none of them. That would make you normal. It will also make you broke.

During our first twenty years of marriage, my husband and I handled money the way most people did - we borrowed. We weren't spendthrifts; we lived frugally and tried to live on a single income. But every year we ended up a little more in debt than the year before.

Fast forward twenty-three months, and our consumer debt went from $23,000 to $0. What changed was not knowledge. It was behavior. We followed these three simple steps:

1. Pay everything from this time forward with cash.

2. Save a beginner's $1,000 emergency fund.

3. Pay off all consumer debt, one debt at a time beginning with the smallest.

In order for this plan to work, we also had to change three behaviors:

1. We cut up our credit cards.

2. We started using a cash envelope system.

3. Together, we planned a monthly zero-based budget to tell our money what to do, each and every month.

Now the only debt we have is our mortgage. Great, you can be happy for me, but what does that do for you? Not much. But if you decide to follow these three steps and change three behaviors, I predict that in eighteen months to three years, you too will be debt free except for your mortgage.

Step 1: Pay Cash from now on

Studies have shown that people who buy things with a credit card will spend thirty percent or more than by using cash. Your money will last a lot longer if you set up a cash system for food, entertainment, clothing, and any other area where it is easy to overspend.

Step 2: Save a $1,000 emergency fund

If you set up a $1,000 beginner's emergency fund, two things will happen - you will be more careful in spending your hard-earned cash, and emergencies will happen with less frequency. Most people can set up this emergency fund in a few weeks or months. Sell something, take a temporary job, make minimum debt payments and throw that money into this fund. Another great resource for this is a home-based business like WorldVentures.

Step 3: Pay off all consumer debt, one debt at a time beginning with the smallest.

With the first two steps taken care of, focus turns to paying off all consumer debt. Make minimum payments on everything but the smallest debt and use all your financial resources to pay it off as quickly as possible. As each debt is paid off, the amount you have to attack the next debt grows like a snowball. With focus, planning, dedication, and discipline you should be debt free except for your home in around two years.

Consumer advocate and personal finance author Dave Ramsey likes to say, "Personal finance is eighty percent hehavior and only twenty percent head knowledge." If you can implement the following three behaviors, you will be able to easily follow the three steps above.

New Behavior 1: Cut up your Credit Cards

Professor Elizabeth Warren of Harvard Law School is known for her bold statement that credit card companies use the same marketing tactics as drug dealers. The average household has at least four credit cards, and fifteen percent have at least ten. The average user with a credit card balance owes around $9,000, and just like a drug addict, they had no intention of getting into that position. The average non-user owes NOTHING. There is no reason why a family can't make do with one credit card or none at all. You can use a debit card in place of most any type of credit card purchase.

New Behavior 2: Use a Cash Envelope System

Your money can and will last a lot longer if you set up a cash envelope system for food, entertainment, clothing, and any other area where it is easy to overspend. Decide how much you are going to spend in each of these areas on payday and put the cash in separate envelopes. Be sure to include such things as birthday gifts and other incidentals that occur during that month. The money needs to last until you refill the envelopes again with the next paycheck. We found that sometimes we had to juggle money between envelopes, but we did not overspend.

New Behavior 3: Plan a monthly zero-based budget to tell your money what to do each and every month.

You can now choose to be normal and broke or change your behavior by following these simple steps to financial freedom. Since being debt free is more satisfying with more peace of mind, I hope to see you join the ranks of those who have already found this financial peace.