Getting out of debt can be really difficult. Getting into it is a breeze. There are offers everywhere: credit cards, student loans, personal loans, auto loans. The list is endless. So, getting into it is easy. Getting out of it, not so much. Getting out of it is going to be much more difficult. I recently heard someone say that you can wander into debt, but you're not going to be so lucky as to be able to wander out of it. In other words, it's going to take some planning, some difficulty and some work.
And yes, I agree that it's difficult but I also want to encourage you that it’s most certainly not impossible. And I know this from very personal experience.
What does it feel like to be on the other side of debt? After 10+ of debt freedom, I can tell you it’s about the best thing I’ve ever experienced. After carrying my own debt-boulder for so long, to be free of it is something I’m still thankful for every day, even after over a decade.
So, I wanted to share this short list with you to help you start to build your own mental map or ladder out of whatever pit you might be in.
You may be looking at your debt pile and it may look to you like an elephant that you're going to have to eat. And, just how do you eat an enormous elephant? One bite at a time. And so it is with your debt. You have to start and just resolve to keep on chewin’.
Do you rock the Pinterest? Would you be willing to pin this image to one of your favorite boards? It helps other people find our stuff. No pressure, only if you think it's helpful. :)
The important thing is that you get started. Hopefully, you’re sick and tired of being sick and tired enough that this list is a much-needed point of refreshment for you and a list that infuses hope into your situation.
After having coached thousands of students out of debt over the past decade, I can tell you that hope is one of the most important things you can foster right now.
So let’s jump in.
Here is a simple list of the tips, then we’ll jump into more detail.
Stop retirement contributions (until debt is gone).
Make a list of all your bills, debts and expenses.
1. Stop retirement contributions (until debt is gone).
One thing you’ll start to see as you start eliminating your debt is that it’s SUPER easy to take “one step forward, two steps back”. I ALWAYS recommend that students temporarily stop contributing to retirement while they’re getting out of debt.
Why? Because it’s inefficient and it takes your "eye off the ball". You can’t do two things at once here. You must do an analysis of what your debt is costing you vis a vis what your investments are earning you. Odds are the gains are either cancelled out OR worse yet, you’re losing ground even faster than you thought.
The bigger point here is that, if you want to start to win with money, you have to be willing to question and then skewer your current thought patterns and habits around money. Would you agree with that? Is what you’re doing now working? More than likely not, as you're consuming this content, right? :)
I know this is a little challenging and it may feel like I’m poking you in the eye a little bit, but I can promise you this is a super important point.
In this process, you’ll only get momentum if you can focus intently on each of these micro steps as you go through them.
So, if you’re serious about this, go ahead and call your 401k, 403b, advisor and/or brokerage and stop contributing to retirement for now. We’ll get back into that after we’ve eliminated all of your debt (except for the mortgage).
2. Make a list of all your bills, debts and expenses.
This is the CRITICAL pre-budgeting step. Many of our students get completely overwhelmed in the budgeting process and are tempted to walk away from it.
It is super important to avoid any sense of overwhelm in this process. Overwhelm is the enemy. The way to defeat the enemy is to divide these “pieces of the elephant” into smaller and smaller chunks.
Ah the dreaded “b-word”. It’s not as bad as you think. I actually have tons of resources that can help you do this in a step-by-step fashion without getting overwhelmed.
Also, please keep in mind that this is going to take about 3 months of consistent work in order for you to “feel” like you’re successful at it.
So, just be mentally prepared to “fail forward”. Your first budget will probably feel like complete chaos. It’s normal. Just try and push through it and celebrate the fact that you actually did it, imperfect as it may be.
Another SUPER important point here is to make sure that you’re doing it on paper for at least these first 90 days. Why? Because learning the budgeting process is hard enough without the added complexity of having to learn a program, app or spreadsheet.
Keep it simple. Do it on paper. I promise, you’ll thank me.
You can learn more about how to actually budget at this blogpost and/or by watching the video above.
4. Save $2000-$5000 in cash as an emergency fund.
I used to follow Dave Ramsey’s advice here and get my students to save $1000 in cash. That’s a great starting point if you need that “bite-sized” chunk.
BUT, with this global shutdown due to the pandemic, I’ve come under the conviction that, even if you’re in the debt-elimination process, $1000 is just not enough to weather a storm.
So, as challenging as it might be, go for at least $2000-$5000 as your “starter” emergency fund.
5. Stop using debt, period.
You’re basically going to have to learn to hate debt. Maybe you do already. I hope so.
You MUST decide to stop using debt if you ever want to win with money.
Why? I’ve seen so many students over the years claw their way out of a debt hole only to find themselves back in the same or worse situation 3-5 years later.
Why? Because they didn’t learn how to hate debt. They made a sort of peace with it and it eventually eroded everything that they had worked so hard for.
I don’t want that to happen to you. This process is going to be hard enough. I only want for you to have to go through it once.
So, repeat after me, “I HATE DEBT”.
6. Arrange debts smallest to largest. The Debt Snowball.
This is what’s called the “debt snowball”. You list your debts in order from smallest to largest. You then make minimum payments on all of them EXCEPT for the smallest one.
You then wage war on the smallest one and throw every extra penny at it until you’ve vaporized it.
Then, you repeat the same process with the next smallest one.
7. Destroy them in that order (smallest to largest by amount owed).
You destroy them in that order. This is as opposed to the “debt avalanche” method, where you work your debts in order of interest rate.
I fundamentally don’t like this method (the debt avalanche) because it’s more “math” oriented rather than “momentum” oriented.
If debt were a “math” problem, we’d all be out of it by Sunday afternoon. It’s not a math problem, it’s a behavior problem and the only way out of it is to build small waves of momentum.
The debt snowball provides you with those little shots of instant gratification that will help you to cross the finish line.
8. Pay with cash only.
Hopefully, by this point you’ve decided that you hate debt, that you’re at war with it and that you’ll NEVER use it again for ANY reason whatsoever.
I know it’s a little strong, but trust me here this is totally in your best interest.
One GREAT way to help you to use cash only is “the cash envelope system”. The video above explains exactly how to do that.
The cash envelope system is a fantastic way for you to reconnect your consumption with your income. It provides us all with a much needed physical barrier to overspending, which is to say, when the money is gone from the envelope, you literally have nothing to spend.
9. Track every single penny.
If you ever want to win with money, you MUST start tracking your expenses.
If you’re using the envelope system, this may be a little easier, as parting with you cash, saving your receipt and even writing the expense on the outside of the envelope is a strong physical representation of how much money you have or don’t have.
Our financial system is brilliant at helping us be ever more disconnected from the amount of money we ACTUALLY have. Think about it next time you go to “swipe” your card and maybe don’t get a receipt. How soon do you forget how much you spent? My guess is… almost immediately.
At any rate, try it for at least a month and see just how much you become more aware of your spending.
Here's a video I shot explaining more about the "how to" of expense tracking.
10. Stop all autopays.
We recommend this for all of our students. This is part of the “reconnecting you to your spending” theme. Autopays are one of those brilliant ways I mentioned earlier that the financial system parts you with your hard-earned cash.
Force yourself to start paying everything manually. It’s really a must if you want to win in this process.
11. Cancel subscriptions.
Chances are there are subscriptions you’re paying for that perhaps you don’t even use or that you could at the very least reduce your expenditure.
If you really want to get out of debt, you’ve got to go “scotched earth” on your budget, at least for a while.
Look at your budget and ask yourself, “can I afford this?” If you’ve followed me to this point, your budget will likely say “nope”.
12. Negotiate with service providers for lower rates.
Part of expenses cutting is also looking at things that you “need” to keep your household going. Perhaps those vendors can be contacted and negotiated with. Perhaps, for example, you can lower your cell phone plan to reduce that expense or move to a lower cable TV package (or just CUT IT altogether).
One of the benefits of the next step, rewriting your budget (at least) weekly, is that it forces you to get more intimate with your numbers. Believe me you want that. It's going to benefit you immensely to internalize your numbers as much as possible.
13. Rewrite your budget weekly.
Any new skill requires the repetition of the correct skills in order to ultimately master it. Budgeting is absolutely no exception to that rule.
I recommend that my students rewrite at least once a week. The more you rewrite, the more your brain keeps working on it subconsciously and the more quickly you’ll be able to master it.
In my opinion, you can’t rewrite your budget too often. 🙂
14. Hold a scheduled, weekly budget meeting.
To help you stay in the “flow”, I recommend a budget review (and rewrite) meeting at least weekly. This will help you “check in” on how your spending is measuring up to your commitments. It will also give you a much needed feedback loop as to what’s working and what’s not.
Actually, just like the rewriting of the budget, I don’ think you can do this too often.
I literally check and reconcile my budget on a daily basis even after being 100% out of debt for more than a decade. This is a skill that will pay off in huge ways for you once it becomes a habit.
15. Cut unnecessary expenses.
This is one of the benefits of staying close to your budget and tracking your expenses. As you get deeper into this process, you’ll more progressively be willing to “let go” of things you once thought of as “needs”.
In my opinion, anything you can’t afford is absolutely unnecessary. This is all part of reconnecting your consumption with your income. It’s painful at first, but stick with me and I promise you’ll see some amazing results.
Here's another video on how to accomplish this:
16. Sell some stuff.
This is a great opportunity to go through your closets, basement, attic, garage, storage unit, uncle Bob’s barn or wherever you store stuff. Start looking at your “stuff”, especially the unused things as potential workers to help you accomplish your debt elimination goals.
Even after over a decade of debt-freedom, my wife and I have a rule that if we haven’t used it in a year, then it’s time to consider: selling, donating or trashing it.
We all have things that we can get rid of. If you have a hard time with this exercise, just go to Facebook Marketplace or another similar site to jog your imagination and help you start to see some possibilities.
17. Get extra work.
"Side-hustles" are all the rage. When I was getting out of debt, I turned my music career into a side-hustle as I went back into the corporate sales world in order to generate some cash.
Can you Uber, Lyft, deliver food/pizzas, walk dogs, be someones grocery shopper, do online surveys?
18. Set achievable debt-payoff goals.
Nothing is more frustrating than setting lofty goals that are unachievable. I’m perpetually guilty of this myself.
Once you’ve gotten your arms around your budget and your spending (no small task, I realize), then you’ll have an idea of what’s “achievable”. Don’t hear me wrong, I do want you to stretch yourself, but I don’t want you to set such high expectations that the stress of failure causes you to consider to quit.
19. Celebrate each small win.
This is SO important and “small” will change over time. At first, “small” will be something like only going $500 over budget instead of $1000.
Over time though, you’ll get better and better at all these skills and your wins will get bigger and bigger.
It’s important to celebrate all of them. Remember, this process is more about behavior change and less about math.
So, when you pay off that smallest debt, let your community, friends, family, coach know about it so they can celebrate with you. We LOVE small wins!
20. Save receipts and review spending patterns.
Saving receipts and other methods of expense tracking help you to keep your eye on the ball of every single penny that’s leaving your budget.
That way, when it comes budget meeting/review time, you don’t have to go groping in the dark for all those disparate receipts/lists/envelopes. Rather, you’ll have everything in one consolidated record that you can just reconcile with your budget and keep rocking on.
21. Increase your financial literacy.
Did you realize that you were increasing your financial literacy just by reading this post? Well, congratulations because you are. Hopefully, by now you’ve downloaded one of my free resources and are on my weekly email list.
Being on my email list is one level of accountability to yourself that you’re constantly increasing your financial literacy.
I put out new content every week (a blog post, two YouTube videos and two livestreams) all aimed at giving you all the necessary tools to help you master your finances.
22. Avoid restaurants. Start meal planning.
That’s right and I know it’s hard. But, doing this at least for a period of time will dramatically reduce your food expenditures. Meal planning and eating at home is where it’a at.
Being on a weekly written, posted meal plan will help you to train yourself as well as your family that, “we got this”.
You will reduce your food expenses and give yourself less space to impulse buy at restaurants.
With more than 95% of our students initially not being aware of what they spend on food, I can tell you that they’re typically VERY eager to get on a meal plan after they’ve tracked that expense for a month.
23. Cultivate contentment.
This one is a little more elusive. It may even sound a little “psychobabble” at first, but it's unbelievably important.
Part of this process will necessarily require you to investigate your “why” for wanting to get out of debt as well as some of your beliefs about money.
More often than not, our students see that the root of a lot of their irresponsible behaviors with money are rooted in a lack of contentment, which manifests itself in:
impulse buying with debt
shopping to “feel better” with debt
keeping up with “The Joneses” with debt
being vulnerable to the marketing industrial complex with debt
placing the handling of their money to external sources (i.e. financial advisors, bankers, real estate agents, mortgage brokers, insurance agents and even financial coaches)
24. Buy a debt-elimination course.
There is no way I can overemphasize how important this is. It goes right along side with #21.
In our experience, the more invested a student is in their financial education, the more they will lean into it. This is true of our digital courses, online memberships and of course individual financial coaching.
There’s something to be said about having “skin in the game”. Think about that for a second. When you’re willing to pay for something, you’re much more willing to give it your full attention.
The immediate example that always comes to my mind is Tiger Woods. Tiger Woods was one of the best golfers in the world. A true top performer. AND, he ALWAYS had a coach.
Why? Why would the top performing golf pro “need” a coach?
Because mastering any skill requires that you:
are constantly learning new skills and refining old ones
are jettisoning habits that are either unproductive or counterproductive
have a second set of eyes to point out deficiencies in your plan, behaviors and performance
have a trusted voice to encourage you in your missteps and to celebrate your wins.
Now You Need A System And A Community
As you may have experienced up to this point, a list of “tips and tricks” are great. I know that you can get A LOT of mileage from them. It’s important to “jump in” and see how far you can get.
But inevitably there will come a time or a situation, where the tips and tricks need the context of a community or of a coach. As I mentioned above, a community and a coach can also shorten the distance between you and the end of your debt.
Only you will know when and where that need comes, I just want you to have some options when it arrives.
I wanted to offer you our free “8 Steps To Erase Debt” resource to give you the framework that can serve as your system or “framework” as you move through this process.
For community, you can join our private Facebook community, Zero Debt Tribe.
There will always be micro steps between whichever tips and tricks or system you’re using, so always reach out to a community or a coach as needed.
The 8 Steps To Obliterate Your Debt:
This is the blog post that outlines the 8 steps I followed to eliminated $43,000 in debt in 2.5 years.
And whether this is your first or thousandth time on the blog, I want to make sure you have this “8 Steps” framework that ALL of our content is centered around.
And again, if you’re looking for some resources to get started, you can download our free budgeting printables. Also, if you’re in a place where you’re ready to kick your debt in the teeth, here's the link to our free “8 Steps To Erase Debt”guide for you to use as your foundation.
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Zero Debt Coach
(A Master Certified Money Coach)
Chief Debt Eraser
Everything about this platform is aimed helping you:
1) Organize your finances, 2) Learn how to budget effectively, 3) Eliminate your debt and 4) Chart a clear path to FI (Financial Independence) in 10 years or less.
If your money has been affected by this global pandemic and you're not quite sure how to make the next steps to secure your finances, this simple, step-by-step, no-overwhelm guide will give you some much needed relief.