Sorry this post is late! The week really got away from me.
This week in FPU we talked about dumping debt (week 4). This lesson made me get really mad at my debt, which is a good motivator for getting rid of it. Debt is so aggressively marketed to our society that we think it’s the only way to get by financially. That is just not true. Just a couple generations before us, debt wasn’t something to be prized and sought, it was an embarrassment.
Dave spent some time during the lesson talking about debt myths and the facts behind them. Some particularly good facts and points he makes from the lesson were:
- More than 100 million Americans don’t pay off the balance on their credit cards every month
- The typical millionaire avoids car payments by buying and driving reliable used cars
- A car lease is the most expensive way to drive a car
- A new car loses 60% of its value in the first four years
- Debt consolidation saves little to no interest
- You cannot borrow your way out of debt
- Banks require a cosigner on a loan when the person is not likely to pay – cosigning is NOT a way to help someone you care about
- The FICO score, or credit score, is calculated based on your interaction with debt, it has no indication of your ability to pay
- 75% of the Forbes 400 said that becoming and staying debt-free was the number one key to building wealth
How to get out of debt:
- Stop going into debt. This seems logical, but many people continue to use credit cards or take out loans after they decide to work toward being debt free. You can’t get out of a hole if you’re still digging.
- You must save money – an emergency fund is key to getting out of debt, because then you have a little money tucked away. When something breaks, you have the cash to fix it instead of using a credit card or loan for the repair. Dave Ramsey recommends a $1,000 starter emergency fund. Caitlin thinks it’s acceptable to cushion that a little more if you need it to be comfortable, maybe up to two or three thousand dollars. That’s not Dave Ramsey approved, though, so take my financial advice at your own risk 😉
- Sell something. I have been listing things on ebay and selling paintings for a little extra income. It’s slow going, but it’s a little bit of help. If I had gotten started before the weather started to turn, I could have had a yard sale. I’ll just do a bigger ebay push when I go through my apartment in the Great Fall Purge of 2013.
- Get a part time job or overtime. Check. If you have any spare hours, try to spend them working to get ahead of your debt. This is a sacrifice, but only a temporary one.
- Approach your goals with positive energy and intent. Dave Ramsey says that “prayer really works,” but I am giving you the non-denominational, sort of spiritual but not really religious way of putting that. My mother always told me, “What you think about, you bring about.” I totally believe it! If you go through this process thinking “I’m never going to get out of debt,” then you won’t. You’ll keep digging your hole, and you’ll make excuses, and you’ll stagnate. I don’t say this to be accusatory – I have had this attitude. I fully planned on paying my student loans for twenty five years of my life. I am 25. I was planning on making payments until I was 50! What? Helllllll no. Now, instead of “I’m going to be in debt forever, that’s just how it is,” I think, “I am going to get out of debt. I am going to do everything I can to get out of debt as fast as possible!” I have motivation, and drive, and passion to get out from under this terrible mountain of bad decisions I made for myself.
- Pay off all debt using the debt snowball. The debt snowball is something we’ve talked about before – list your debts smallest to largest and pay them off in that order, making the minimum payments on all but the smallest. For me, that’s the car, then a student loan, then another student loan.
Speaking of the car, I got my statement in the mail and my balance is now $4,433.90! I still have October, November, and December to get it paid off by Christmas and I believe I can do it. I will do whatever it takes. Next will be paying off my smaller student loan by my birthday. Goal setting is something that is very important to me and my success at getting out of debt. I have been worried about my motivation lagging once I get to my big $49,000 loan, because it is SO big and will take me a long time to pay (but two to three years is way better than 25). I think my goal at that point will be to break it into $10,000 chunks and pay them off one at a time. I’ll call it $10,000 for every semester of graduate school.
Successes this week: