Debt Elimination Strategy - Bite Sizing The First 4 Steps
Getting Out Of Debt Requires Surrendering To The Process... Totally
In all of our years of watching people get out of debt, my wife and I have found that there are 8 steps that, if totally surrendered to, work every single time.
Yes, there will be temptation to work your own "version" of the plan. And yes, there will be temptation to add or subtract some things or to not strictly adhere to certain principles (like... "I still have a credit card, but it's just for emergencies").
But time after time, we see the people that totally fuse themselves to this plan and don't deviate, get out of debt MUCH more quickly than those who dabble or invent their own deviations.
Why 8 Steps?
Getting out of debt requires a very solid and consistent focus of effort. In order to achieve this focus, it's best to follow a prescribed set of steps that have been proven to work for others.
Focusing on each individual step, one at a time, eliminates distractions and the temptation of trying to accomplish too many things at once (which never works).
So, once you've settled in your mind that you're ready to "do this", it's time to dig in. And here are the 8 steps you’ll want to follow (downloadable form here: “8 Steps To Erase Debt”):
The 8 Steps To Erase Debt
These are the 8 steps I followed to eliminate $43,000 in debt in 2.5 years. Trust me, they work!
0. Stop All Retirement Investing (Until Step 4)
1. Build A Budget
2. Starter Emergency Fund of $1000
3. Eliminate Debts Smallest To Largest (a.k.a The Debt Snowball)
4. Full Emergency Fund of 3-6+ Months' Expenses
5. Invest A Minimum of 15% Income Into Retirement Accounts (and increase savings rate to 50%+ if possible)
6. College Funding (if applicable)
7. Pay Off The Home Mortgage
8. Build Wealth, Serve and Be Ridiculously Generous
"Bite Sizing" The First 4 Steps:
The challenge we see, especially with our newcomers, is that the first 4 steps can sometimes take upwards of 2-5 years or more, depending on the size of the debt.
For most people this is overwhelming, especially during the initial stages.
So, we’ve seen that it has been super helpful for them to have the steps broken down into even smaller “bite sized” ones to help eliminate the overwhelm.
Here are the first 4 steps again:
0. Stop All Retirement Investing (Until Step 4)
1. Build A Budget
2. Starter Emergency Fund of $1000
3. Eliminate Debts Smallest To Largest (a.k.a The Debt Snowball)
4. Full Emergency Fund of 3-6+ Months' Expenses
All that said, the following is the more granular version of the "first 4" and how we start the coaching process with about 90% of our clients.
Again, this just further breaks the first few of the 8 steps down to make them more digestible.