Eliminating Debt


The Book of Proverbs states: “The rich rules over the poor, and the borrower is servant to the lender” (Prov 22:7). If this is true, our nation is an enslaved nation. Not only is the Government deeply in debt, but it is estimated that the total American consumer debt is more than $2.7 trillion, with an average household credit card balance of $9,300. It is no surprise to learn that the number of cases for Bankruptcy rose about 34% according to the Administrative Office of the US Courts in the period between October 2008 and ending in September 2009. The combination of a struggling economy and poor spending habits are leaving many with very few options.

But effectively managing our finances can reroute the path to financial ruin. It is not easy, but is achievable with a positive outlook and a change of attitude. Following four simple steps can greatly improve your peace of mind and start you off on a healthy relationship with your money. Attitude, Budgeting, Saving and Debt elimination are four areas of discipline which can free you from the slave-master prison.

1. Change your Attitude

When walking through a mine field, it is wise to keep your eyes open for traps. That is the mentality you must have when walking through the menacing world of consumerism. It is no secret that Madison Avenue pours millions of dollars into studying human behaviors. It is how ‘they’ can convince you you’re cooler, thinner, and younger if you own a Mac rather than a PC; that Flo from Progressive has nothing but your best interest in mind when you buy Insurance (although the Gecko would probably disagree) or leave you wondering ‘whether she’s born with it, or maybe it’s Maybelline’. You probably know the catch phrases for all the ads on television better than what your money is doing each month. Make a resolution to not give in to advertisement and purchase only what you need. This will be the beginning of your Money Makeover and will free you from Credit Card Dependency.

2. Make a Budget

Budgets have the connotation of being complex with a bunch of mathematical equations which requires hours of computation; and although getting on a budget is not an easy thing, it shouldn’t be such a complicated ordeal. There are plenty of sites on the web offering great budgeting advice and even providing you with free forms and tools to get your budget started. Two great websites to start with are daveramsey.com and crown.org. A budget is a tool which tells your money where to go each month. It is advisable to create a zero balance budget, where you designate every cent coming in to a particular category, in essence leaving no spendable income laying around burning a hole in your account. Rather, budget some blow money or spending money and once it’s gone…it’s GONE. Once you’ve created your budget STICK to it. At least for a minimum of 90 days to truly see it’s potential and value.

3. Save Save Save

We’ve all heard the saying “save for a rainy day” – and you know that Rainy Days are inevitable in a human’s life. Unexpected events should be expected, and the best way to deal with them is to be prepared by having an emergency fund. Start with at least $1000 in a Money Market Account which you can open at a bank, a credit union or a Mutual Funds investment Firm. These accounts earn a slightly better interest rate and have limited check and withdrawal privileges, which makes it easier to keep it untouched. The important thing to remember is that this is an EMERGENCY fund, and should not be used for anything other than an emergency. Also remember this fund is an insurance, not an investment; it is a way to insure that when that emergency comes rolling round the corner you will not default back to using your credit cards. The goal is to get out of debt.

4. Dump the Debt

The most effective way to do this is to CUT all your credit cards up. This may be a very difficult step to take, especially if you have been relying on credit cards as your emergency fund. But it is the only way to guarantee you are not going to be digging the whole any deeper. Aside from cutting your cards, you should call the issuing bank and completely close the account and let them know you want to be placed on a repayment plan. Most credit card companies will work with you and even lower the interest rate once you close the account. If you have committed to a budget you will have designated a certain amount for food, entertainment and other incidentals. Always use cash for these expenses so you are not tempted to overspend.

List all your credit cards with the lowest balance card on top. Pay the minimum amount due each month on all accounts except the top one. Pay as much as you can afford on the smallest card – and if you have already funded your Emergency account, use every possible free dollar towards paying this card down. Once the top card is paid off, take the full amount you were paying and roll it over to the second card so that now you are paying the minimum on the second card plus what you were paying on the first card. This is called ‘snowballing’ your debt. Once you have paid off the second card, pay the minimum on your third card plus whatever you were paying on your first and second card and so on-by the time you reach your last card you have created a big ‘snow ball’ amount so that each card down the list becomes easier to pay down.

These four simple steps should start your off on what will hopefully be a new attitude towards financial responsibility. Freeing yourself from the chokehold of credit cards will change not only your financial landscape but your entire life as well. With no debt you are free to take that low paying yet fulfilling job or start a charity or even retire early. The key is to stay focused, disciplined and consistent and before you know it, you will be enjoying your well deserved jubilee.