The Goal: Get out of debt ASAP! Do you want to get out of debt but don’t know how or where to start? If you haven’t read my previous posts, go check them out to see why we should want to get out of debt sooner (4 Reasons To Get Out of Debt) and step 1 in the process: (The First Step to Get Out of Debt)
If you’ve read them, then here it is….
In order to be able to get out of debt, you need to be current with all of your bills. You cannot start putting extra money towards loans and debt, if you don’t even have your payments up-to-date. This is a very important step. Get caught up on your payments if you have fallen behind. If you need to take on another job, then do it. The worst thing is to have credit companies calling you and asking you “where is our money?” It brings so much unnecessary stress.
The real question though, is why are you behind? If you are behind due to poor planning, then we need to figure out a budget! Click Here to see my post on how to make a budget in order to get on the right track with your payments. Or are you behind because your expenses every month exceed your income? This problem of overspending and putting things on credit cards is an epidemic in today’s society. We have little-to-no self control, and we have an instant gratification attitude. If your expenses are exceeding your income, making a budget can also help. If the issue is lack of funds, there may be another way to increase your income. Find ways to make money on the side. There are so many different types of jobs out there that allow people to increase their income. Whatever the reason, get caught up on payments!
I do understand there are some seasons of life that do not allow people to pay extra on their loans. That’s okay! Be wise with how you spend your income and eventually, the time will come when you are able to figure out a way to get out of debt! There is another thing to consider if you are up to date on your current bills.
Start An Emergency Fund
Before we started paying tons of extra money towards our loans, we started an emergency fund of $1000. Now $1000 may not seem like enough money, or it may seem like an overwhelming amount. It depends on who you are and your specific situation. I can tell you though, $1000 is enough to cover most emergencies.
This step is so important! Because, if you do not have any type of savings for emergencies, then emergencies will happen! It seems like whenever you are trying to pay off debt, all of these unexpected expenses come up and you can never actually pay down the debt. The key is to be prepared. When you have $1000 saved, if something happens to your car you can fix it. If you all of a sudden have to pay for something that was not planned, you will have the money for it. Having an emergency fund takes away a lot of stress when inevitable emergencies happen.
For Emergencies Only!
So you have $1000 saved. When are you allowed to spend this $1000? You can only touch that money IF YOU HAVE AN EMERGENCY. What constitutes as an emergency? An emergency counts as something unexpected and necessary. As well as something that you could not put off for another time in the future. Paying car insurance is not an emergency. You should be planning for that in your budget every month. Paying taxes is not an emergency. You should be planning for that in your budget if you think you may owe this year. Anything that you could plan for, therefore, is not an emergency. Christmas gifts, birthday gifts, vacations, any kind of insurance does not count.
What does count then? When your car breaks down and you have to get a part fixed. If you or someone in your family gets an unexpected illness, that could count. Unexpected and urgent would be if there is a water leak in your house or your air conditioner breaks. There are many urgent and necessary emergencies that could come up. You might as well be prepared!
Peace of Mind
In my opinion, having an emergency fund is not negotiable. It gives you a safety net. While we have been paying off loans, we threw almost our whole savings account at our loans. That means we had no extra money to buy a new car or buy a new expensive cell phone. So, having our emergency fund gave us peace of mind that at least we could fix what we had if it broke. At least if the car broke down, we would have $1000 to fix it. At least if a cell phone broke, we could buy a cheap one that works for now.
Saving that much money might be very difficult for some people. But if you can do it, you’re already on the right track to pay off debt! It will make you feel so accomplished, and kick start your enthusiasm to get your debt paid off. It is not impossible. Trust me, B and I were able to do it at the beginning with only one person working and living on our own with all of our bills. Once you get your emergency fund, and figure out a budget that works, you are ready to start the debt snowball!!!