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Tuesday, March 2, 2010

Tuesday's Tips - How to Get Out of Debt - Step 5

Tuesday's Tips Button

This series is coming to a close and today we get to talk about how to work our Total Money Makeover!

You've got money enough for the basics and all the money coming in is budgeted.  The next step  is to save a starter emergency fund of $1000.  This is so important, especially since you've made the commitment to no longer borrow money.  Since debt is not an option you must have money for when emergencies happen and they will.  There needs to be a cushion between you and life so you won't be tempted to run back to your credit cards.  Get this $1000 as fast as you possibly can by working extra or selling stuff on a garage sale or putting items on Craigslist or Ebay. 

Make a list of all your debts, smallest to largest regardless of the interest rate.   Why are we not worried about the interest rate?  As Dave Ramsey says, "Great focused intensity supersedes math any day."  By working the debts smallest to largest the progress you make will help you feel great and then you'll become more focused and intense on the task at hand.

Take that debt list and pay minimum payments on all of them except the little one and throw every single penny you can at the little one and get rid of it!  You need to become focused on that one debt, when that one's gone, attack the next smallest debt.  You'll continue this process until you've paid everything off!  The amount of the payment you're sending to your creditors grows each time you pay off a debt because that minimum payment is gone.  That's why it's called a snowball because it grows larger as it continues rolling down the hill and gains more and more momentum as you go along.

You can do this and I'll be here to cheer you along all they way!  If you have any questions feel free to shoot me an e-mail, I love to help others!  I won't bite, I promise!

Becoming Debt-Free definitely Works For Me!  And being Debt-Free is a Finer Thing!
At Tuesday's Tip Jar you'll find other bits of useful info.

Are you debt-free or working on the journey?  Where are you in the process?  Almost done or just starting?  Leave me a comment.

If you're a blogger you can link up a tip, just make sure you send us to the post with the tip and not your home page to make it easier to find the info.  Make sure you leave a link back to here also.  Thanks!



Rebecca said...

Excellent tips there! Quite some time ago we had HUGE debt and we paid it all off using some of the same principles that you have been blogging these past few weeks.


Harper said...

We're working on paying off debt. I'm familiar with Ramsey's method, and, as you pointed out, the smallest to largest thing is about motivation. Personally, interest rates are a huge motivator for me, so paying down the largest interest rate first is a better goad than focusing on the smallest balance.

I also keep an Excel file to track my progress, and that helps too.

Kaye said...

We are doing a Total Money Makeover as well. Tomorrow, in fact, I've scheduled my monthly financial update on my blog.

We've got the baby emergency fund and we've paid off two of our four cards. Hubby is seriously on board after reading Dave's TMM book and has sold a lot of stuff to free up some cash for debt payoff!

Leslie said...

That is a great post! Even though we haven't been in debt since our early days of marriage I continue to get inspiration from post like these to stay out of debt and live a frugal lifestyle and stay on course.

Lori @ Couponomic Stimulus Package said...

I'm so glad to have been an encouragement to all of you! That's what I love to hear!

Kaye, great job on your progress!

Leslie, That's awesome that you've continued to stay out of debt!

Rebecca, Great job paying off that debt!!! It feels so freeing!!!

Harper, I'm glad you found what works for you. I know that most people like the intensity they feel from paying off all those smaller ones, but you need to do what works for your fam!

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