I frequently hear from people who want to get out of debt but have no clue on how to get started. My answer is very simple and straightforward. If you are in a hole, stop digging!
The first step to taking control of your money is to stop borrowing- Dave Ramsey
First of all, now that your money mindsets are on the road to recovery it is time to bring debt accumulation to a screeching halt. If you really want to get out of debt you MUST commit to not taking on new forms of debt as you work to pay off existing debt.
According to a 2016 study by Nerd Wallet, the average American household has credit card balances totaling $16,061. That is just credit card debt. This number does not factor in car loans, student loans, personal loans, etc. Credit cards are a frequent source of trouble because they are the most accessible when you find yourself with more month left than money.
Contrary to popular belief, not everyone gets into debt because of overspending on fancy footwear, clothes, and expensive vacations. More often, credit card balances increase for reasons that are much more mundane.
Got debt? Here’s why
Reason #1: You are running a deficit each month. This means that you are spending more than you are earning each month. Once your money runs out you rely on credit cards to cover routine household purchases such as gas and groceries until payday.
Reason #2: You have no emergency fund. When there is no emergency fund in place, everything becomes an emergency and credit cards become the temporary fix.
Actions to Take If You’re in a Financial Hole
1. Destroy Your Credit Cards.
2. Dramatically Reduce Your Living Expenses.
3. Get Current on Any Accounts That Are in Default.
4. Start an Emergency Fund.
5. Get to Know Your Enemy (Debt).
6. Create a Budget.
A budget tells you exactly where your money is going. A budget may also reveal unnecessary expenditures that could be cut to free up more cash for your debt payoff efforts.
Are you too comfortable with debt? Is being in debt the norm? Can you commit to avoiding new debt as you pursue financial freedom?