Getting Started on Your Debt Free Journey

You have your why. You’ve decided now is the time to get out of debt. You may not know how long it will take or how much sacrifice will be required, but you’ve resolved to become free of this burden once and for all. But, you are facing a very difficult hurdle right out of the gate. Getting started. 

When you’re living in a debt cycle, it becomes very difficult to interrupt this cycle and begin a new process. Think of someone sticking a pole in the spokes of your bike while you’re riding. A jolt is coming and you’re likely to fall off. But that’s OK. Let’s explore a little deeper what this debt cycle looks like and why it proves so difficult to break. 

When you are using a credit card, there is an initial perk of using the card that makes its use very attractive – you don’t owe the amount borrowed until next month. If you are using a credit card for monthly expenses, this puts you a month behind in paying for your monthly expenses. To break this cycle, you need two months’ worth of cash – one month to pay off last month, and the second to pay for this month to become current. This is cash needed on top of your initial emergency fund of $1,000 – $3,000. When living paycheck to paycheck, this becomes a very difficult hurdle to overcome.

So how can you get out of debt if you don’t have enough cash to break this ugly cycle? Below are seven steps that I’ve used to help others get started on their debt-free journey:

  1. Make a complete list of all your household bills, including bills that are being paid with your credit card. – utility bills, internet, mobile phone, etc. Don’t miss any bills – include everything where you owe money to someone else. 
  2. Make another complete list of all your consumer debt and the minimum payments due for each month. The plan is to stop using debt products immediately and only pay cash for expenses. So no new debt should be added to your budget going forward.
  3. Next, you will need to create a budget with this information. I recommend creating a simple “paper” budget for your next paycheck – nothing fancy. Make sure you include all of your monthly expenses and the credit card minimum payments that are due during this period.
  4. Ok, this next step is important. Review the budget with your spouse or an accountability partner. What expenses can you temporarily do without? Examples: streaming services, mobile phone plan, eating out, lawn service. Don’t wait, cut them! You need these dollars to help get ahead of this debt cycle. And remember, these are temporary sacrifices to enable a lifestyle that you can afford later. 
  5. When you receive your next paycheck, put the budget into action. Write down all your actual expenses and any excess money that needs to be saved immediately. Your initial emergency fund should be your highest initial priority, so pay yourself first. As I have coached clients, this is a very difficult step – they want to tackle the debt with a vengeance before saving for a small emergency fund. Repeat after me…pay yourself first. You have to do this.
  6. Once the month is completed, you need to sit down with your budget and your actuals to review what went well, and what didn’t go well. Many people skip this step, and as a result, never identify what is blocking them from making progress. Maybe you ate out too much, or you fell prey to the biggest sale of the season. This is the moment of reflection and identifying what needs to change. Follow Steps 1-6 again before the next month’s beginning.
  7. Once you’ve saved enough for your initial emergency fund, you can begin making progress on saving enough cash to get current with your expenses. Continue to follow steps 1-6 until you’ve saved enough to get current on your monthly expenses and remove the need for a credit card to pay monthly expenses. Finally, you can begin applying your “get out of debt” plan, such as the Debt Snowball.

The budget should be tight and sacrificial. During these initial steps, you should only include credit card minimum payments that are due during this first paycheck period and only budget for the minimum payment. I know that the high-interest rates look scary and the thought of only making a minimum payment can seem counterintuitive. But remember, you need cash to break this debt cycle. Pay yourself first – the credit card companies will get theirs soon enough. Remember, sometimes being scared and panicked can cause irrational choices, so take a deep breath and be truthful with yourself.

A couple of words of caution. Don’t attempt multiple debt reduction plans at the same time. It will only confuse you and potentially make the matter even more stressful. Also, I’m generally not in favor of debt consolidation approaches – doing so removes a lot of flexibility you have with multiple debt sources. You create a giant elephant that is hard to tackle.

Need help? Generous for Life is my one-on-one financial counseling program designed to help you become intentional about handling the resources God has given you.

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