Ask the readers: Best advice for getting out of debt

JasonJ Says:

June 13th, 2007, 5:58 am

Two words: DAVE RAMSEY

Anand Says:

June 13th, 2007, 6:04 am

My take on this is to:
1. First take stock of ALL your liabilities, so as to know exactly how much you owe to the world.
2. Calculate Monthly Payouts and see if there are any loans which can be preclosed?
But I wouldn’t pre-close a loan which has only a couple of EMIs pending. I;d rather let it get over when it would.

3. Most important - DO NOT TRY to get into any new debts as far as possible.

4. NEVER Consider a consolidation loan - for example, some people may have four concurrent loans going on. But all 4 may have different begin and end periods..

So the people think that they can take One BIG loan and close out all these small loans.

The big mistake that they make is that they forget all the interest that they have already paid on those small loans and the time that they have spent paying out the EMIs. Now this new BIG loan will put them into debt All over again and they have to pay interest on this new BIG loan which totally defeats the purpose.

Getting out of debt is a very slow and painful process. I had about 4 loans going on side-by-side. But now I have completely paid out 3 loans and am left with only one loan which will go for a another 3 years. I may consider foreclosing that around nNext hear.

My most important tip to all the readers, is that once a loan gets over, put an amount equal to 60% of the EMI into a saving account and enjoy the remaining 40% as an increase in your spending capacity.

Egor Margineanu Says:

June 13th, 2007, 6:07 am

One credit-card with limit.
One loan with monthly payment not exceeding 25% of income.

Maggie Says:

June 13th, 2007, 7:43 am

I kept making the mistake of paying off my entire balance whenever I came into money (tax refund, etc.). I did this two or three times before I realized that this is bad! As soon as I paid off my balance, my car would break down or some other emergency would come up and I would have no savings - and have to charge it.

I have since learned that slow and steady wins the race, and while paying more than the minimums on my payments, I also have built up an emergency fund. So far I’ve paid $3000 down to about $800 and I can tell this is definitely going to be a lasting change. Oh, and I also cut up the cards so I couldn’t keep yo-yo debt dieting!

Yorkshire Bob Says:

June 13th, 2007, 7:51 am

Speaking from personal experience, my advice would be to speak to a Credit advisory service.

I spoke to the (UK based) Consumer Credit Councilling Service and they helped me to work out my income, my ‘must pay’ outgoings and then arranged with my creditors to freeze their interest and to accept a revised monthly figure based on my remaining income.

I now only have to pay one fixed monthly figure to one company (CCCS) and have the pleasure of watching my outstanding debt drop month by month.

The added benefit of using this service is that if my circumstances change for the worse, then the CCCS will renegotiate on your behalf.

Once I have cleared my debt I will be taking Anand’s advice and saving some and enjoying the rest of my monthly payments.

Jeff Says:

June 13th, 2007, 7:51 am

How I did it:

Buy some good personal finance software (Quicken Deluxe, Money Deluxe). Put all your bills in. Look at how much you have left after bills every paycheck using the “cash flow forecast” feature. Don’t spend more than that on gas, groceries, dining out, etc.

- Stop using the credit card to make it to the next paycheck. If you spend too much at the beginning, you have to make what you have left stretch.

- Stop using the credit card to make it to the next paycheck. Seriously. This is what’s screwing you.

Now that you’ve stopped using the credit card, the amount isn’t growing anymore, add another bill into your finance software for your credit card repayment.

- Don’t over-do it, pay back just enough every month so you’ll eventually pay it down. Otherwise, you won’t have enough to make it to the next paycheck and you’ll just spend again.

Good luck! You really can do it, and it really is the right thing to do for yourself, and if you have kids, you especially have to do it.

Steven Devijver Says:

June 13th, 2007, 8:04 am

I think one piece of advice doesn’t work because how to get out of dept depends on your personal situation. If you’re a single with moderate dept then a list of actions might work for you.

But that same list won’t work for people with a lot of dept or families with children.

So my best piece of advice is to not rely on one piece of advice.

kleanchap Says:

June 13th, 2007, 8:15 am

Currently I am in debt. I want to erase it before getting married. Erasing debt is not a small task. Pondering on the debt elimination task, I came up with the following items that I can think of for now:

1. Avoid eating out at all cost. Cook your own meals. Be advised not to cook bulk meals of the same item. You will easily get bored with the same dish and then start going back to eating out. There are very special ocassions where you will have to eat out. For those outings, budget a small amount.

2. Create an emergency fund. How do you create your emergency fund? 10% of your paycheck (gross income) goes into this fund. Once it is deposited, you DO NOT know of it’s existence. DO NOT TOUCH IT!

3. Leave your credit card at home. You only need it to improve your credit score. As for the purchases, use cash. Just like the emergency fund, the credit card does not exist either.

4. For entertainment, visit friends and be creative on how to entertain yourselves and your family without spending a dime. (I am working on this area myself, so I cannot offer any better advice.)

5. I did the same mistake as Maggie did: Pay off all the credit card balance from the savings/emergency account. BIG MISTAKE! Don’t do it. Pay it of slowly. Your savings from food and entertainment will help you pay off the credit card soon. Do not touch the emergency fund. As far as you know, it really does not exist.

The marriage date is fast approaching, I see a few more expenses coming up on the radar. For that I have to spend within my means which I plan to. Help me God!

For most people dwelling in this debt subject, debt is the major stressor. No amount of medicines or meditations or yoga will help you. Get rid of the debt!

Joel Says:

June 13th, 2007, 8:17 am

1) Make a budget - Purpose every dollar (including some buffer)
2) Destroy the credit cards
3) Accumulate at least $1,000 in a savings account for emergencies
4) Snowball the debt - Pay minimums on everything, attack the smallest balance with all the extra cash you can assemble, then move on to the next one

George Peattie Says:

June 13th, 2007, 8:23 am

One piece of advice is pretty simple although perhaps not entirely helpfull.

Live within you means

Probably the easiest way this gets away from people these days is easy credit and nothing is easier than a credit card.

I can’t say don’t use a credit card, these are convenient and in some cases you can save money with them, or at least you can in the UK. If you do decide you must have one for whatever reason then clear your credit card bill every month. The CC company will hate you for it but you aren’t working for them yet, if you use the card the way they want you to you will be before long.

If this advice is too late and you can’t afford to clear what you owe then sit down NOW work out how much you can afford to put toward paying off that debt. I know it can be depressing but every month that goes past is costing you real money.

mjh Says:

June 13th, 2007, 8:35 am

stop buying stuff

Keith Says:

June 13th, 2007, 8:35 am

Leo, great blog. I have passed it on to friends and your tips have been a great help to me getting my work done. I like the philosophy of simplifying the task of simplifying life.

We have a small business. Started putting supplies and incidentals on a company credit card for simplicity. Fine plan when everything is OK. When business slumped after 2001 more things went on credit - business and family expenses. The problem got to about $20,000. It took the resolve and realization to cut up the cards, business and personal. My wife was most resistant to let go of her card. Society and the credit industry say that a woman must have a credit card to be seen as independent and as a hedge. It took about 4 years of slowly paying everything off to get out of debt. Spending control, saving are key. It also takes one person to be in control of income and outgo. A husband and wife with competing interests is suicide.

The company maintains vendor accounts, but unlike credit cards, there are limits to what a vendor will bear - one or two months. I have a company debit card for non-account vendor purchases, rentals, gasoline and online purchases. It forces me to have a handle on my balance. Overdraws are very pricey. If funds are short I have to put it away. Online banking makes frequent checks on affairs faster. There is a temptation to use the company as a slush fund. Business has been brisk enough I have had to hire an outside bookkeeper. It’s an expense, but she keeps me much more up to date on company finances. Very freeing - about 12 extra hours a month I can spend on family and business development. I also expect to institute a set salary for myself this year further separating company surplus from personal impulse spending. You have to not only develop habits, you have to recognize your tendencies (and your family’s) and place limits on them.

Jenn Says:

June 13th, 2007, 8:36 am

One book: Your Money or Your Life.

Carey Says:

June 13th, 2007, 8:52 am

Keep trying and don’t give up. Make a commitment, and if you aren’t getting out of debt slowly but surely, revisit that commitment. Change is difficult and it takes drastic change in mindset and behaviors to get out of debt. Anyone can do it - as long as you really want to do it.

Stop spending! You have to really, truly want to do this. Otherwise, you’ll put yourself on a financial diet and then crash and burn and find yourself justifying why you deserve to spend so much money on a new iphone when you have a perfectly good phone and $20,000 in debt.

Praise yourself for every small accomplishment. But, don’t praise yourself by spending frivolously.

Find the tools that work for you and stick to them. If the tools aren’t working, find new tools. There are plenty of tools and ideas out there - for free.

If you have a spouse or partner that is contributing to the debt, it can be a big challenge to get them to change. Focus first on changing your behaviors and attitude.

Be realistic. If you started accumulating debt three or four years ago, realize that it will probably take you more then three or four years to get out of debt and stay out of debt.

I tried many systems until I finally found what worked for me - a simple spreadsheet that I created.

1) I listed all of my debts in the spreadsheet - total amounts, monthly payments for each, due dates for each, method of payment for each, APR, etc. (You have to know where you are in order to know how you are going to get to debt free.)

2) Paid as much as I could whenever I could (while keeping a small emergency fund in savings).

3) Every month I went into the spreadsheet and updated the total balance of each debt. I kept a running history in the spreadsheet of total debt balance and the date of that balance. It was very motivational to see that total balance decrease (on most occasions). So, every month I had a small reward in the pleasure of seeing that total balance go down. Once I had years of data in there, it was extremely gratifying to look back at past dates and see how much I had paid my debts down. Some months, my debt went up instead of down (like Christmas and months that I traveled). That became a good indicator to me that I did not successfully change my behaviors towards Christmas and vacations and that I still had some changes to make.

Keeping a history of my total debt balance and the motivation of seeing that balance decrease month to month finally kept me going long enough to get out of debt.

Bottom line: you have to truly want it, be realistic, and keep trying different systems until you find the one that works.

kleanchap Says:

June 13th, 2007, 8:58 am

@Anand

What does EMI stand for?

Dani @ Living Behind the Curve Says:

June 13th, 2007, 8:59 am

We’re a few months away from being free of our credit card debt; here’s how we did it.

1. Create a realistic budget. Put as much money as you can towards paying down debt and having an emergency fund, but allow for a little bit of. Only the truly dedicated can live with no social/recreational activities for the amount of time it takes to become debt-free.

2. Take a hard look at what’s truly necessary, and be willing to make compromises. Cable TV, satellite radio, and lunches in the office cafeteria are not necessities. If you have a hard time letting go of these things, run your numbers through a debt calculator twice - once with your current budget, and once with additional money currently paying for niceties. You’ll be amazed at how much of a difference those few extra dollars make.

3. Get creative. If there’s something you think you don’t have time to do more frugally, find a way around it. For example, cooking at home is much cheaper than eating out. If you don’t have time to cook, try investing in a crock pot.

4. Be patient. Debt reduction is a long, slow process. Depending on the method you use, you may see no significant progress at first, but it will happen.

Dave M Says:

June 13th, 2007, 9:18 am

STOP BORROWING MONEY - No Matter What!

This means no more credit cards, no more car loans, no more cash advances, no more home equity lines, etc. If you can’t afford to buy something with CASH you have now, then YOU CAN’T AFFORD TO BUY IT.

Save up the money and buy it with cash. By the time you’ve saved up the money, it’s very likely you will have realized you don’t even need the item you were thinking about buying anyway. This happens to us all the time.

Shannon Says:

June 13th, 2007, 9:32 am

Have one credit card. Pay off the balance each month. If you run up a balance, cut up the card and rely on a debit card for purchases that require a credit card.

Track your expenses in a software program like Quicken. Categorize your expenses and report out how much you spent in each category so you can easily spot your problem areas (eating out, clothes, gas), then target those for reduction. Always know exactly how much money you have in your checking account.

Maximize your 401K contribution. Every time I get a raise, I increase my contribution by 1-2% because I won’t miss the extra money if I don’t ever see it.

Pay yourself 10% first. Put this into an account that is hard to touch. A money market account can earn good interest. Make sure it is a chore to get the money out (you have to drive to the bank), so you will only tap it consciously and for major expenses.

karenlim Says:

June 13th, 2007, 9:48 am

Hee hee, I do something really different

I change my thought to attract prosperity instead of focusing on debt.

Just 11 months of changing this thought, I generated about $40k investment income, while incurring only $8k in interest on debt.

I finally understand. All things are just relative to each other. Is it ok to be in debt? Yes, as long as you are having good debt or your $ is placed to earned income more than the expense.

Here is the post I share how changing my thoughts help me to relieve the focus on debt:-
http://secretofunlimitedprosperity.com/3/let-me-tell-you-the-secret/

Cheers!

paulkdad Says:

June 13th, 2007, 9:55 am

So far as paying off debt is concerned:

1. Make a plan… ANY plan. You’re better off with a mediocre plan than no plan at all. When in doubt, the “snowball method” is simple and works well.

2. Leave yourself some “wiggle” room. Life throws some unexpected expenses your way, so include some slack in your plan for these little setbacks.

3. Have a long range vision. Keep your eyes focused on where you will be five (or ten, or fifteen) years from now, because getting out of debt takes time.

So far as controlling spending is concerned:

1. Pay cash for your purchases. It’s a hassle, but you always see exactly where the money goes.

2. Turn off your television, and discard catalogs and other advertisements immediately (but not coupons!). Do this, and your urge to buy stuff you don’t need will plummet.

3. This last one really worked for me: Move into a smaller place. Forcing you to get rid of a lot of stuff that you’re probably still in debt for will show you just how little any of it matters.

Happy Rock Says:

June 13th, 2007, 9:58 am

The first and most important tips is to find your purpose. Is it your children, to start your art business, work from home, free money so that you can give? Finding motivation beyond the money drives our passion. Otherwise our drive is limited. This passion will lead us find out the ‘right’ things to do like stop borrowing, creating budget, etc. Take a look at the things you value deeply and view that framework to judge your actions buy.

brent Says:

June 13th, 2007, 10:00 am

people, please. under NO circumstances put any faith in the Law of Smack-Ttraction.

It’s bogus and you know it.

Change your thoughts, fair enough. That might be what’s needed for you to change your actions: maybe by thinking positively you’ll act on your good intuition and profit from it. That’s fair.

Don’t just keep on spending and think “It’s ok, I’m going to be richer, not poorer after I spend this money because… I Have Changed My Thought To Attract Prosperity Instead Of Focusing On Debt.”

Pur-lease.

Ben Says:

June 13th, 2007, 10:02 am

make outgoings

Ben Says:

June 13th, 2007, 10:03 am

hmm.. seems the comments die when you use a ‘less than’ symbol..

Previous text:

make outgoings ‘less than’ incomings and put the difference into repaying debt.

Balfour Says:

June 13th, 2007, 10:06 am

Amen to Jeff’s comments:
“- Stop using the credit card to make it to the next paycheck. If you spend too much at the beginning, you have to make what you have left stretch.

- Stop using the credit card to make it to the next paycheck. Seriously. This is what’s screwing you.”

This is a big problem for me. I’ve become completely used to debt and credit cards. There was a great quote from a predatory credit card company in the movie “Maxed Out” about how they target people who are used to being in debt and have become numb to it. I wish I could remember the quote because it was perfect and it was enraging that the credit card companies think that way. That potentially is a motivator for me, self-righteous anger at these companies!

I’ve scrubbed my expenses in the last 6 months or so and gotten rid of my SECOND gym membership–I also have a cheap one at work–which I wasn’t using often enough, although it’s literally across the street. I got rid of cable completely (then I sold my TV!). I don’t miss it at all and do a lot more reading, books either bought or gotten on credit by bringing in my used books at a used book store. I get the cheapest Netflix subscription — around $5 or 6, I think — that provides me with 2 DVDs per month that I watch on my laptop. I intentionally haven’t had a car for 3 years. I’m always looking for more things to cut, but I still have a cell phone, a land line, and dsl. Can’t see cutting any of those at the moment.

So, I’m down to food, both groceries and eating out, and social stuff–entertainment. And vacations. I’ve cut out frozen convenience meals, which really really makes a big dent. But, the good, healthy produce stays. Just need to be more careful and not splurge on that left and right and keep to basics.

I also have a budget and track my expenses.

My debt is big. I’m working on it.

Paul Says:

June 13th, 2007, 10:08 am

Got a raise coming up? Bookmark it. Pretend it didn’t even happen, and funnel all of the new money into the debt relief.

Balfour Says:

June 13th, 2007, 10:10 am

Oh yeah, make money on real estate (be sure to get something that’s going to appreciate.) No, really. I’ve done it. But, I got back in debt afterward.

Focus on the debt and getting out of it. Not focusing and humming along on credit is what gets me in trouble every time.

Craig Says:

June 13th, 2007, 10:19 am

Some great advice but I think one thing is being overlooked: changing how you think of money. The best advice I ever received concerning money was to calculate how much money you make (net) per hour. Do this regardless of whether you are a business owner, salaried or hourly employee. Now apply the time factor to any purchase you make. For example, is that 32″ flat screen television you’re thinking of purchasing worth 10, 20 or 30 hours of your time. Once the dollar amount was removed from the equation and the time factor applied, my spending habits changed overnight.

A Tentative Personal Finance Blog Says:

June 13th, 2007, 10:52 am

Spend less than you earn

HopefulGirl Says:

June 13th, 2007, 11:07 am

I love everyone’s advice. Thanks guys!
One thing (that should be common sense) I frequently have to remind myself is: pay off the cards with the highest interest first.

I am so often tempted to pay down the card with lower interest because it has a lower balance and I feel like I making a bigger dent to bring it back to zero.

Scott @ Simple weight loss Says:

June 13th, 2007, 11:07 am

This is the plan that helped me become BAD Debt Free. Good debt is okay.

I made a choice to get and stay debt free. That is probably the first thing I can recommend. You have to make a choice and become so commited to the achieving the goal that it becomes impossible not to achieve it.

I found motivational rewards for helping me to acheive my goal.

I tracked every dollar spent using Financial Software. It is difficult to change if you do not measure.

I stopped Spending as much as I could.

I did my best to make more money.

I stopped using Debt as a way to finance my life. So, I stopped all Credit Card Purchases.

I read the book Debt Proof Living by Mary Hunt. I not only read the book, I took active steps to implementing the ideas I found useful in the book. It really helped me! I highly recommend it.

I followed a modified Debt Snowball Method: see: http://en.wikipedia.org/wiki/Debt-snowball_method

I now follow Dave Ramsey’s 7 Baby Steps: http://www.daveramsey.com/media/pdf/fpu_babysteps.pdf

Make Life Changes. Surround yourself with savers. Remove spenders. For example, I have some friends that all they do is spend and buy the latest gadget. It’s hard not to want to keep up. I have other friends that seem to do their best at loving what they have and fixing what they have. Trying their best to save money.

You are what you read. Read and get motivated. I read a ton of Finance books during my debt reduction period. Millionaire Next Door, The Motley Fool You Have More Than You Think : The Foolish Guide To Personal Finance, Think and Grow Rich, Richest Man in Babylon

Create Affirmations that help you visualize that you have already achieved your goal in vivid detail. Everyday spend 15 minutes visualizing writing the check for your last payment to debt. Think how it feels. If you use a Debt Snowball method, you should have a date, Imagine writing that date on the check.

Mickey Says:

June 13th, 2007, 11:15 am

While it might be difficult to do, regardless of your debt situation, start with a clean slate if you have any children in your life and make it your mission to educate them. I hope this isn’t too far off the topic of this post but if you make this a mission, then not only do you have a living, breathing reminder to “practice what you preach” but you will have their guidance and reason as you get older and (inevitably) rely on them for certain things. By happenstance, I was fortunate to take a financial management course in the 5th grade. I was so intreagued by it that my father somehow convinced a bank to let me have a checking account at the age of ten–with my parents as co-signers, of course. This has been totally fundamental in my current financial situation: I’ve come out of college with 0 debt and $40k saved and am currently saving for a 40% down payment and a 15 year mortgage along with plans for attending grad-school without loans. My father has benefitted from the situation as well, as he never had to pay for college/cars/or even living expenses as I’ve gotten older. My interest in the finance world has grown to where I’m now in charge of the writing and formation for his trust as well as moving the family business into an LLC–saving my family buco in lawyer fees.

Chris B. Behrens Says:

June 13th, 2007, 11:26 am

Let me start by saying that I’m not setting the following forth as monumental achievement; I made big mistakes that cost me big time along the way, but I think my results are at least consistent with the request.

I embarked on eliminating my debt about 7 years ago with ~$36,000 of debt. Earlier this year I made the final payment. That may seem like a long time, but at the same time:

I invested and built up a $20,000 balance in a pair of 529 accounts for my sons to go to college
built up about a $10,000 balance in a 401k
paid off a $15,000 note on a used car
co-purchased (half share) $90,000 of real estate investment property

Here are several keys to my success in this endeavor:

Balance transfers - the regular rate I paid on cards was somewhere around 10%. By transferring balances, I was able to consistently pay an average of 4%, sometimes more, sometimes even 0. One thing to look out for is transfer fees: make sure that the fee isn’t greater than the interest you would save!
Overdraft protection - I had an overdraft line of credit attached to my checking account. This allowed me to be extremely aggressive in paying off the debt. I could make a payment that I knew might get me in trouble at the end of the month because I knew that the ODLOC would save me. Plenty of times, I would end up going into it, but never more than I could pay back in a paycheck or two while still making more than a minimum payment on the debt.
Living below my means - obviously, the previous strategy requires that I have an income that allows me to make more than the minimum payment. One measure of this is the ratio between your housing payment, be it rent or mortgage, to your income. Mine was consistently 1 to 6.
Measuring - for those seven years, I consistently balanced my checkbook twice a month with Microsoft Money. I haven’t used any other tools, but I’ve heard good things about Quicken. There’s no way it would have been possible without this indirect step; awareness of the state of your finances is the only thing that allows you to be aggressive with payments.

You can raise the obvious argument against this program that it’s too complicated, and that it requires too much self-discipline. I can’t really refute that, but I would argue that building up systems that manage that complexity (electronic bill pay, financial software), and the requisite self-discipline are well worth the effort.

I heartily agree with almost everything here, with the exception of some comments about retaining cash; cash is evil, and should be disposed of before your next paycheck (either by making a payment on debt or through investment, including a savings account with a decent return).

Cash is constantly (though slowly) declining in value. Many investments are easily and readily liquidatable in an emergency, and, in a pinch, I have put emergent bills on credit cards and immediately performed a balance transfer getting 3-4% on the “loan”, rather than liquidating a stock that was earning me 7-8% consistently, or worse, drawing from a 401k and pulling massive penalties.

Currently, I have about $1800 of short term debt (I just bought a refrigerator, and I have to fly to Colorado for a buddy’s wedding), and about $6500 on another used car. The $1800 I’ll pay off in the next two months, but the $6500 is on a 4% card, and because I can easily earn more than that falling off a log elsewhere, I’ll pay minimums until that’s paid off.

One last piece of advice: most people look for large short-term advantages, e.g., I’ll pay off my debt as soon as this $5000 deal goes through. Those happen sometimes, but real success (for me) has come through optimizing small long-term advantages, e.g., the difference between 8% and 6% on a note, or cancelling my satellite TV and saving / investing / paying on debt with the difference. I also gave myself a big gift (~$1500) when I reached halfway.

Debbie Says:

June 13th, 2007, 11:34 am

I’m not wild about advice that says start spending less and saving more. I want to know how, specifically, to do that.

First, see where you stand. Write down everything you spend and everything you earn in one month and write down all your debts.

Looking at your expenditures, see what surprises you. Usually you can find something that you have been spending a lot of money on that is not very valuable to you. So, you should be able to find some easy changes to make.

Next, you are going to have to educate yourself on your alternatives. Sometimes we spend a lot on things because we assume there are no alternatives. Is cooking at home as bad as you think? What about ten-year-old cars? Roommates? Cheaper parts of town? Thrift stores? Libraries? Bicycling? Wearing a sweater and fuzzy slippers inside in the winter so you can turn down the heat? Ask questions, do some experimenting, do some research. Find your biggest expenditures and do some brainstorming and some googling.

As Happy Rock says, think about your goals. The author of The Tightwad Gazette was willing to work harder to save on food, clothing, and entertainment so she could spend more on housing, have more kids, and let one parent stay home with the kids. I spend less than normal on transportation, housing, and clothes, so I can spend extra on traveling and early retirement. Quit spending money on stuff you don’t care about.

Sometimes you don’t even realize you’re buying stuff just because of societal norms or parental expectations or keeping up with the Joneses. Try to pay attention to that sort of thing. Hang around people who are the way you want to be so that peer pressure can be used for good instead of evil!

One recommended book is the already-mentioned Your Money or Your Life, which is about becoming totally financially independent (able to retire), but which can be used equally well to get out of debt. The author focuses on how to figure out what you have and better align that with what you want and on how to keep track of your progress.

My favorite book is The Tightwad Gazette which is especially good for ideas on saving money on food, clothing, and entertainment, even if you have kids, but more importantly helps you learn to notice your alternatives. The author has so many ideas that you will be able to find many that you’ve never tried, no matter how frugal you already are and, more importantly, will teach you to notice and create your own ideas that are perfectly suited to you.

Ben Says:

June 13th, 2007, 12:21 pm

When I was in college, I spent a couple semesters without a job and used my credit cards to survive. I didn’t have enough funding from loans or family, so all financial support came from these cards or whatever money I made from work. It got to the point where I was paying other credit cards off with a new card.

After I realized that paying 5 bills every month (each having a rate above 17%) was beyond my budget (i.e. I could only afford to eat one cup of rice every other day), I consolidated. The interest rates for each card dropped by 1/3 each. My new payment saved me $1.60/month in stamps, and I’ve been able to pay off most of this debt. Sure, I’ve been paying for 4 years now, and I’ve only paid off half of it, but with the extra money, I’m able to pay more than the minimum on the cards I have left. I haven’t used credit cards since 2002, thankfully.

Another tip is to never close your accounts (even if you cut up the cards)! Having an account open for a long time is a sign of good credit.

Finally, after graduating (2004), I had student loans, car payment, etc. The first thing I did was consolidate all of my high interest student loans into a loan that was only 3%. I had less payments to make, and the interest I would have had to pay was decreased by thousands over the life of the loan. Now, I always pay a little bit over the minimum. Slowly but surely, my loans are dwindling. I keep records of only loans and credit cards, what I owe (from the most recent statement), and what my payment was for that month. I keep a history of all of this, as well as milestone totals. This helps me understand my goal and to figure out how much principle I’ve paid off in a period of time. Usually, the loans I’ve had will provide an end date, which is the date when which your loan will paid off given you pay the minimum each month.

Debt is something a lot of us have. Look at the United States! Making a plan and being able to stick to it is my answer to everything, including paying off debt. Make it a habit. You’ll be very happy when you have some extra spending/saving money after your payments stop.

Ben Says:

June 13th, 2007, 12:29 pm

I apologize for a second post, but sometimes it helps me if I think about wealth rather than debt. The fact that I think “I’m going to get out of debt” will keep me thinking about debt. If I think “My financial situation will contribute to my overall wealth.” That thought keeps me going.

John Says:

June 13th, 2007, 12:39 pm

Someone mentioned Consumer Credit Counseling Services (CCCS). I don’t know personally if this is true, but Dave Ramsey says all the time that this is as bad for your credit rating as declaring bankruptcy, and most people aren’t bankrupt, they’re just too lazy to control their money. Make a budget. Track every single dollar. If you’re really challenged, use an envelope system.

I find that patience is the hardest thing. I setup a budget. Established an emergency fund, etc., etc., and it’s still taking years to pay off my debt (large “pet” school loan). The concept of sacrifice and “delaying pleasure” to reach larger goals is very difficult.

Carm Says:

June 13th, 2007, 13:01 pm

Twenty years ago I had a serious debt problem. I finally woke up and realized I could barely make the minimum payments. When I started paying bills late and getting a lot of calls from creditors I knew I had to make a change. That was no way to live - in fear that the phone would ring.

I started by paying a lot more attention and getting those minimum payments in on time every payday. I think I had around 5 credit cards I had to pay on. A minimum amount might have started at $40 but as I paid it down the minimum would be reduced to $30 then $20. But I kept paying the original $40. When one card was paid off I applied that payment to the next card.

Every time I made some extra money from overtime I paid it on the debt. Eventually I paid the whole thing off and I have remained debt free for the last 20 years. I built up an emergency fund and hope to never go into debt again.

m Says:

June 13th, 2007, 13:12 pm

*Make a budget and start saving for the things that you normally put on the credit card (including emergencies).

*Don’t buy things until you have the money to pay up front.

We are just now doing this and, hopefully, by planning ahead for vacations and other big purchases, we will be able to pay up front and avoid charging things.

Up till now, the logic was always “We can pay for this in a month or two, we have the money.” But somehow, it seems to never get fully paid off and the credit card debt grows. Mine is not too high, but it’s not low. I am working on paying it off by paying well past the minimum each month and making extra payments sometimes throughout the month, and more important, we are implementing the rules above to prevent debt from racking up again in the future.

Travis Says:

June 13th, 2007, 13:56 pm

The best advice I have seen is -
Make a budget which includes a schedule of getting out of debt.

Make your minimum payments on everything.

List your debt in order from highest to lowest.

Apply an additional amount monthly (whatever can fit into your budget) to the LOWEST debt.

When the lowest debt is gone, move the minimum payment plus the extra amount onto your new LOWEST debt.

Keep rolling the ball uphill until you are done.

John Says:

June 13th, 2007, 14:15 pm

Carey you are right on!
Like it or not, getting out of debt requires attention to detail while understanding the bigger picture. I also made up a one page spread sheet that captures all of my money transactions. Who I pay and how much - the spreadsheet covers a 6 month time period. It also shows my total credit card debt ( which was at $25k at one point) AND how much I am putting in savings, 401K etc. If you dont take an honest snapshot of your debt, you will think about others things and continue to spend. I look at the debt and savings numbers every morning, it keeps me ontract.

ataman Says:

June 13th, 2007, 14:40 pm

my wife and i are actively kicking our debt’s butt right now, and it’s not easy, but we’re trying to look ahead, and keep reminding ourselves how good it will feel to be debt-free.

this will be somewhat repetitive (a lot of good, sound advice in above posts), but here are some steps, anyhow:

1) Realize that (almost any) debt = slavery. if you don’t mind debt, why get out of it?

2) make a plan of how you’re going to get out of debt - debt snowball, for example

3) Start spending less than you earn. this means you’ll have to tell yourself NO a lot more than you used to. if you don’t earn enough, try to earn more (from Dave Ramsey).

4) Budget and read personal finance books, publications, blogs. Self-development blogs like this one are also great.

5) As Ben said, think positive. telling yourself NO stinks, choosing to not go on vacation stinks, looking around and feeling like everyone else has more money than you stinks, even if you make a good chunk’o'change. what especially sucks is the first months, when the debt doesn’t seem to be disappearing, and there are still years of extra payments. remember what you’re working for.

A good illustration of positive thinking is, imho, working out. when you’re been going to the gym for a month, what do you usually do in front of the mirror? hang you shoulders and complain about how fat and un-athletic you look? sure, some people might do that, but don’t most people strike a pose, flex, and try to look for even the slightest improvement of the bicep curve? Same with debt. each month you owe $1 less is a good month.

Karerra Says:

June 13th, 2007, 15:04 pm

1. Destroy your charge cards and credit cards. Do not charge anything. Do not open up any new accounts, even if they offer a discount (like at Sam’s or Kohl’s). That “discount” will disappear quickly in interest charges. Also, if you need any incentive, take a look at the cardmember agreements (including APR) for these things. They are almost criminal. You do not want to be beholden to these companies.

2. Pay off your smallest debt first to get the momentum going. Some people go by the rule to pay the highest interest ones off first, but I personally like the rush I get from paying a card off completely and closing it. It’s a great motivation to continue.

3. Be willing to make sacrifices. Remember, you own things. They do not own you. We had to sell one of our cars and get a “beater” but this was the best move we could have made. It was so empowering not to have a car note hanging over our heads.

4. Get a debit card and use this for purchases that require a credit card (somebody already said this above…). Otherwise, use CASH whenever possible. I think about it this way: in a casino, you use chips, right? If you had to use cash instead of chips, you’d probably not bet so much. Same thing applies with cash vs. credit or debit cards. Parting with cash is harder than putting something on a card.

Good luck everyone.

Leah Says:

June 13th, 2007, 15:20 pm

Please everyone, listen to Dave Ramsey’s daily radio show. He’s all over the country and also on XM, I believe. He uses simple principles to coach you through getting out of debt. I’ve been debt free for 3 years because I followed his plan. First step is to save 3 to 6 months of expenses in an emergency fund, next is the debt snowball.

dabrainiac Says:

June 13th, 2007, 16:34 pm

Don’t get in debt.

Soultrance Says:

June 13th, 2007, 17:31 pm

Cash Only Budget. That’s how my wife and I keep myself from getting further into debt. I have student loan and credit line debt that I’m paying off slowly but surely, automatically setting aside a portion of every pay check to make my monthly payments (above min. payments are key).

We got into debt by using debt and credit to freely, so we switched over to a Cash Only system. Every time we get paid we take out enough money to cover half of all our bills and set it aside in a separate bank account. Then we immediately take what’s left out in cash and use that until the next pay day. Having a physical representation of how much cash we have on hand at all times had really helped. It was hard at first to adapt to the system, but after the first month we worked out all the kinks and we haven’t once gone into the negative since starting cash only, whereas we were almost always in the negative before.

At the end of every month, we have all the money we need for bills set aside and everything gets paid quick as a snap through online banking. No late bills, no not being able to afford bills, it’s all working really well. We’re also setting aside a portion of pay every month into an RRSP, which helps with TAX breaks and is great for the future.

Cynthia Says:

June 13th, 2007, 18:01 pm

I agree with the Dave Ramsey suggestions (or Mary Hunt, very similar approach, but I don’t believe in “tithing” which she does).

ingeborg Says:

June 13th, 2007, 18:19 pm

put a note in your wallet with this text:
DO I REALLY REALLY NEED THIS ?

I heard this from somebody and think it is easy and pratical …

good luck…

Debting Thomas Says:

June 13th, 2007, 18:47 pm

My best advice to getting out of debt is
1. Cut up the credit cards — You can not get out of debt if you keep on debting.
2. Make a spending plan and figure out a percentage of your debt repayment you can give to each person you owe money to.
3. Start a Prudent Reserve. Even if it is only a dollar a day. Dave Ramsey recommends an emergency fund of 1000 bucks.
4. Get outside help. There are wonderful groups out there like Debtors Anonymous, etc. Get support. You are not alone.
5. Do not deprive yourself to pay your creditors. Remember you are just a number to them not a person. They will abuse you, torment you, etc. Check out The Credit Info Center online to get advice in how to deal with that.
6. Do not debt one day at a time no matter what. No unsecured debt.
7. See yourself as completely debt free. FREEDOM! What is that gonna feel like. Imagine it.

Good Luck
DT
http://www.debtingthomas.com
Helping People get out of Debtor’s Prison and Achieve Financial Freedom one Dollar at a Time.

kath Says:

June 13th, 2007, 20:02 pm

1. I transferred my credit card balances to a 0% interest for 16 months card and divided my balance by 16 to see how much I would need to pay off before I started paying interest. Then I committed to that amount, no matter what, until the card was paid off. I actually still have the card, with an 8.99% interest rate now, but it is one of those rewards cards, and I can get the rewards points even if I pay it off in full each month. The rewards aren’t just for travel, they will send you a gift card for stores like the Home Depot and other places I shop in. When I do make a credit card purchase, it’s usually because I don’t have enough cash on hand at that moment and it’s something we usually really need. When that happens, I usually go online as soon as I have the money and make an online payment, so I don’t have to worry about the balance later. I also make additional online payments whenever I get any extra or unexpected money.
2.I use supermarket flyers and plan menus for the week, clip coupons, and I’ve just decided to start putting the amount of money I save from coupons each week into a savings account. This week, between coupons and my supermarket discount card, I saved over $41.00!
3. Figure out a brutally honest budget. Make sure you budget for gifts, entertainment and whatever other things we all spend too much money on and don’t like admitting.
4. Find free or low cost entertainment. Check the local newspaper, or look online and see what upcoming events are going on. Many towns have free concerts in local parks, the local libraries often have fee arts and crafts classes, get a state tourist guide and see what’s going on in your area, and be a tourist in your own town.
5. Be creative. Learn to paint or refinish hand me down furniture, or sew curtains and pillows. I have been reading DIY blogs and gotten some really great ideas for my home.
6.Start a garden. Grow tomatoes, peas, beans, and herbs in pots if you don’t have a yard.
None of my suggestions are huge, but they all add up. All of my kid’s friends love hanging out with us, because we’re always doing something fun, and I love it because most of this stuff doesn’t cost me any money! It’s a win-win situation!

Tantowi Says:

June 13th, 2007, 20:16 pm

If your debt keeps piling up - no matter what you do - then it’s probably time to find a way to make more money. Sometimes you can only strech your current income so far. But how can you start an online business, without spending a lot of money? And without your own product? By selling other people’s products - as an affiliate.

ShadZee Says:

June 13th, 2007, 23:22 pm

Here is my advice : Don’t Buy!
(a funny clip from Saturday Night Live ;-)

Lily Says:

June 13th, 2007, 23:40 pm

Is it crazy to slowly move $$ from your retirement after age 59.5. I am sinking in debt, but I realize it is far from a long-term solution. Maybe it is short-sighted and avoiding the issues.

You guys are really helpful. Guess I have to bite the bullet: spreadwheet, budget, consistency, emergency fund (hardly possible now–but I will start), etc. ..please answer the IRA query.

Thanks.

Stop Swimming Says:

June 14th, 2007, 0:32 am

Avoid getting new debt, be frugal, get support from your family (emotional and financial if you can), look for extra sources of income, set a debt payment deadline and eyes on the goal.

JasonD Says:

June 14th, 2007, 3:44 am

And above all else, teach your children early so they don’t make the same mistakes as us!

The best advice has to be not to keep getting yourself into debt in the first place. I know that sounds obvious, and people will say it’s hardly helpful, but I have many friends who get into debt, pay it off and then just do it all over again. If that advice was obvious then maybe they wouldn’t be doing it. I honestly believe it’s not obvious because it isn’t one of the skills that we teach our children.

Personally I blame the previous generation (in a nice way, obviously)! Our parents, the ‘baby boomers’, who were the first to grow up with such a sense of freedom that the lessons their parents taught them got completely lost before they got to us.

If you don’t teach them how to handle it responsibly, there are plenty of credit agencies out their willing to teach them irresponsibly. The scary thing is that these credit agencies market themselves as your advisor. I make it a policy never to accept advice at face value when the advisor stands to make financial (or any other) gain from that advice…we should be teaching our kids that same lesson.

This is a subject already discussed here:
http://zenhabits.net/2007/06/27-skills-your-child-needs-to-know-that-shes-not-getting-in-school/

kleanchap Says:

June 14th, 2007, 6:32 am

@JasonD

You are right on brother! Great observation and advice. I am one of those who pays off debt and falls right back into it. I will try not to this time. Help me God!

Jesse Simmons Says:

June 14th, 2007, 6:40 am

If you can handle the discipline and the cash flow (and most people can’t), using credit cards every month can be a way to minimize the amount of interest you pay in general. VISA and others allow you to carry a balance for a month without paying interest - so I often put as much as I can on my VISA (regular purchases, not splurging) and at the end of the month pay it off completely with my paycheque. This has the net effect of keeping a few grand interest-free every month, saving me quite a few bucks each month as I work towards paying off my total debt.

Abel Says:

June 14th, 2007, 6:53 am

Getting out of debt is more like a habit than anything else. It’s nothing to do with what tools you use or how much money you make. Even rich people are in debt.

There’s only one way to be debt free: discipline. Decide how much you want to pay off every month and stick to it. If you really have discipline problems, set up an automatic debit (or standing instruction) to transfer money to settle your debt.

To maintain debt-free, pay off your credit card every month. And don’t buy things that you can’t afford. Most of the things we want are not necessary.

Carey Says:

June 14th, 2007, 8:51 am

John (@2:15) - thanks for the idea! I will not only continue to use my “snapshot” spreadsheet to watch my mortgage slowly disappear - I am now also going to use it to watch my savings and investments grow. Thank you! Funny too… “snapshot” is the actual name of that worksheet!

Leo - thanks for the great articles! I really like all of the great ideas everyone has posted here!

Balfour Says:

June 14th, 2007, 9:05 am

I’ve set up a daily reminder at memotome.com with Jeff’s prophetic words:

“- Stop using the credit card to make it to the next paycheck. If you spend too much at the beginning, you have to make what you have left stretch.

- Stop using the credit card to make it to the next paycheck. Seriously. This is what’s screwing you.”

Steve Says:

June 14th, 2007, 10:41 am

Create a balance sheet and update it every month. List your assets on one side and your liabilities on the other.

Assets should only include things you can easily sell and there approximate value.

Liabilities should include all of the money you owe others.

If your starting value is negative your goal should be to make that number smaller every month

If your number is positive your goal should be to make that number larger every month.

The real value of this exercise though is it puts you in the habit of checking your financial situation every month which will reinforce habits that are increasing your wealth and hopefully allow you to catch and stop habits that are decreasing your wealth.

ladydoughgirl Says:

June 14th, 2007, 12:48 pm

In a nutshell:
Get out of bad debt and start living within your means and saving for your retirement.

gwinne Says:

June 14th, 2007, 13:44 pm

I’ll preface this comment by saying that I’ve never been in debt. The only money I owe is my mortgage. But I wouldn’t discount credit cards; I use my discover card to pay for almost everything and I *earn* money (get money back). Likewise, I opened a credit card to pay for some furniture and saved 10%. I always pay credit cards off by the end of the month, so interest is not an issue.

Leo, I’m really enjoying your blog. I’ve been reading it for a few weeks.

Scott Says:

June 14th, 2007, 14:29 pm

Anger is your friend when used to motivate yourself for personal change.

Go to http://www.pbs.org/wgbh/pages/frontline/shows/credit/ and watch the PBS documentary about credit card companies. Get mad, really mad and start hating the credit industry. They are enabling you to do some terrible things to yourself. Cut up your cards and pledge to never use them again. It is a form of slavery.

You can live on a lot less than you think. Because of an error on my part I otherdrew my bank account by $300. It was paid back within a week by my automatically deposited paycheck. However, they charged me $600 in fees. That following month I lived on $600 less and survived and paid all my bills too! We fritter away so much each month.

Don’t be afraid of bankruptcy if you truly cannot pay back your loans.

Get free from the nightmare of credit and the comumer society and not only will you be happier but you will be out of debt in no time.

kleanchap Says:

June 14th, 2007, 15:10 pm

Another movie that looks critically about credit cards is MaxedOut at

http://www.maxedoutmovie.com/

It is pretty informative.

Credit cards have become a necessary evil, especially to buy homes or cars (big ticket items).

I like some of the above posts where you do cash only transactions etc.

laura Says:

June 14th, 2007, 16:44 pm

Great advice on Oprah’s Debt Diet along with great forms to help you find out where you are and plot a course out

Bill Says:

June 14th, 2007, 19:56 pm

Eleven years ago, I got help from a credit card counseling service. With their help, I was able to eliminate my credit card debt in a few years. The mistake I made was avoiding credit rather than re-building a good credit score once the debts were paid.

When I purchased a car for my wife, I had no credit. When making major purchases, “fair” credit will get you a better deal than no credit. I could have saved thousands if I had actively worked on my credit score.

Steven Says:

June 14th, 2007, 21:12 pm

Read the book: How to Get Out of Debt, Stay out of Debt and Live Prosperously by Jerrold Mundis.

Once you’ve read it, read it again.

AgentSully Says:

June 14th, 2007, 23:58 pm

One point regarding helping others get out of debt. You should encourage, lend advice if invited to do so, but try to refrain from “helping the person out” by means of lending money. This can do more harm than good.

Help them to help themselves. Show them the way.

If the person doesn’t want to learn how to get out of debt, and you help pay off some of their debt, they will soon run up new debt.

If your friend or loved one is at their debt max, at least they won’t (hopefully) be able to grow that debt higher (the principal that is.) (The interest will obviously continue to make the overall amount larger over time.)

Chris Says:

June 16th, 2007, 0:33 am

I know I’m down the list, but I had a great deal of success doing the following:

1. Make a budget — include every monthly bill and budget by paycheck. Budget for fuel and groceries too. After these are paid, set aside a certain amount that you are willing to live on between checks. If you run short, you can take it easy for a week or two.

Side note — do not be scared to slide your expenses between checks to better balance your cash flow. Just don’t keep sliding them to the future!

2. Pay bills and required expenses FIRST. Set up electronic payments to your debt and utilities the day before you get paid, so you know what you have left, and remember your ‘allowance’ from step 1.

3. When you have extra cash (like an 3rd paycheck in a month if you are paid bi-weekly,) set aside your ‘allowance’ and pick a small treat to reward yourself for staying on your budget. Use the non-budgeted amount to pay off debt — either smallest card / loan or highest interest first.

4. IF you decide to use debt to make a leisure / nonessential purchase, be willing to set aside a portion of your allowance to repay the debt within a short, predetermined time period. Don’t make the next purchase until you have paid this one off.

5. Until you are free of debts other than mortgage and maybe new-car payment, no savings account will pay as much interest as an investment in debt repayment. A credit card can serve as an emergency fund until you are prepared to actually commit cash flow to this account.

–I know I’m going to hear it on the last one, but consider this: someone I know has 17 credit cards with a total balance in the $20k’s — along with a savings account in the neighborhood of $10k. Does this make sense to ANYONE?

AgentSully Says:

June 16th, 2007, 8:13 am

@Chris - You are right about #5. That’s a classic rule of personal finance. If your “net” interest is negative,( i.e. interest paid minus interest earned) then you should use the savings to pay off the loan, except mortgage since that has a major tax deduction and your investment is presumably growing in value.

tom martucci Says:

June 16th, 2007, 10:46 am

Thier are so many good suggestions that are stated from others which i totally agree with most.

The very best way to get out of debt is not to get into debt I know easy said than done. But the first principle is CASH IS KING that is if you use cash for all day to day peurchases you will never go into debt except for two areas Home,Automobile

Tommy Says:

June 19th, 2007, 21:09 pm

After I graduated college, I was up to my neck in debt (about 30K or so!!). I buckled down and setup a budget. I think most folks today just don’t understand what it is to live within their means.

So here’s how the budget worked:

Rent $x bucks/month
Food $y bucks/month
Gas $z bucks/month
Emergency Savings fund (if you have enough)

That was pretty much it. Maybe $10 for a movie or something.
The rest was the standard credit card stacking scheme:

Pay whatever you can afford to the card with the highest rate
Pay minimum on everything else

When you pay off the card with the highest rate, drop that monthly payment down to the next highest rate and continue the scheme. Yes, it will take years, and yes it will most likely suck (as it did for me). But you will learn something.

You’ll learn that you will NEVER want to live that way again so you’ll only pay for stuff with cash (or rewards cards backed with cash in the bank so you don’t pay interest).

After I paid everything off (including my wedding & 2 new cars), I’ve resolved never to get into debt again except for the house purchase (although I’m going to try for a huge down payment if not all cash buy on that).

Now that I’ve paid everything off (just about a couple of years ago), we are debt free and save about 1200 per month into my 401K and 2500 per month into cash savings. I only trade stocks in my IRA accounts (another way to save on taxes). This is all on one income (my wife is a student at UC Berkeley) and living in the bay area. We’ve saved enough to take a month in Europe (we will use zero percent credit cards to finance the trip with the cash to pay off the cards sitting in the bank earning interest until they come due–the interest will pay for 10% of the trip alone!). Also we are couchsurfing in some spots in Europe meaning we will have a place to sleep for free about 1/2 of the time. A real money saver and a great way to really meet new people in new places.

Here are my money tips (what I call “things a 20 year old should know from a 30 year old).

Itchin’ to buy a house?
Car payments negatively impact your credit score way more than credit cards since car payments tend to be a fixed amount that is rather large (like $300 per month). If you want to buy a house soon, pay off your car! (Also, don’t buy a car until AFTER you sign the papers on the house).

NEVER lease a car…I know what they say about deducting business use from your taxes and all that jazz, but the problem is you will pay a monthly payment to lease a car forever. If you want to truly get out of debt (and I consider anything with a major monthly payment a debt), then the best thing to do is get yourself a quality car that saves gas (I drive an Acura RSX Type-S that I bought new in 2002…it gets about 33mpg and hauls enough arse for my needs). Now that the car is paid off, all I pay insurance, maintenance and gas…no unsightly car payment to worry about. I plan on having this car for at least 300K miles. I stick to the book as far as maintenance goes and I haven’t had a problem yet in 55K miles.

Save early.
You’re heard it before, but if you’re in your early 20s, build a cash hoard. Trust me. I’ve built mine so late in life since I paid everything off and it’s not the best position to be in.

Live easy.
You don’t need to much to get by. If your friends keep wanting you to go out and blow wads of cash partying every weekend (or more often), then you’ll have a lot of fun, but your life will suck when you have to pay it all back.

Buy things you can afford.
Don’t buy a house with zero down payment or with an interest only loan or worse, a negative amortization loan. These are stupid loans that are designed for one thing: to make the mortgage folks money. You’ll be stuck with a big gorilla on your back that will suck some major balls and lead you to financial ruin (aka most of the nut jobs going into foreclosure nowadays). Don’t buy a car that costs more than 1/5 your yearly salary. Don’t make a lot of cash? Buy a used car. Make 100K? Get a 20K car (like a nice Honda). Make 200K, then you get a Lexus. See? Easy.

Don’t buy too much stuff.
Need a new jacket/jeans/shirt? What’s wrong with the old one? If you don’t answer with “it got stolen” then guess what? You don’t need a new one. If it’s torn, just sew it up. Need a new video game? Rent it. Need a new DVD? Go to the library and borrow it. Want to watch it over and over again? Go borrow it again and again. Need some books? Library has those too. Need new tools? Some libraries and community centers have those too. Or borrow some from your friends. Unless you need tools for work (like everyday) then just borrow it. Get baby stuff as hand me downs. My wife has found great bassinets, strollers, and all sorts of stuff for free. Just clean them up and they’re ready to go. Need furniture or appliances? Check out garage sales, craigslist, etc. Grow veggies. It’s hard work (aka exercise) and you learn stuff. Plus you have awesome, fresh, organic veggies at your fingertips.

Don’t buy gym memberships
Take fitness classes at community colleges. It’s cheaper, more fun, you meet people, AND you get your exercise in. Plus you learn stuff (like tennis or volleyball or badminton, etc).

Conserve stuff you have
Wash plastic baggies. Yep we do that cause we’re both cheap and we don’t like to throw crap into the ground to be covered up and figured out later. Recycling, reusing, and all that hippie crap is not only good for the environment, but it’s good for your pocket book. For example, did you know that old food scraps are good for fertilizer? I didn’t until my Chinese mother in law came and we started collecting chicken fat, soured milk, etc into containers in the yard. Wait till they get really stinky then pour into your tomatoes and other plants…works great. Reuse scrap paper until it’s totally covered then recycle it. Clean your closets and find everything useful. If you are going to use it soon (a month or two) then keep, if not, sell it or give it away so others won’t have to buy stuff either.

Anyway, that’s my rant for now. I’ve lived by these principles for some time now and I can say that it’s nice to finally have a nest egg (albeit a bit smaller than I’d like, but working on it) and not have any car payments or credit cards to pay.

Diana Says:

June 21st, 2007, 4:36 am

For those in Credit Card Debt:
Just 7 tips from someone that used to work as Credit Card collections officer.

1. CALL your credit card company if you will not be able to make your minimum monthly payment. They can type notes in your file and give you an extension as long as you can tell them when you will be making the payment. Pay as much as you can as a token payment if you can.

2. BE REALLY NICE to the person you speak to. These staff are abused all day. If you are nice, they will offer you lots of options that will not affect your credit reference rating. If you are rude, chances are they will not.

3. TEAR UP any offers of a credit limit increase that come in the mail. If you can’t bring yourself to tear it up - give it to a friend or spouse to tear up for you! (I say this because I know that some people feel their heart break a little bit to pass up an offer of money).

4. CANCEL ANY DIRECT DEBITS or yearly donations that you may have forgotten about. It’s well and good to be charitable, but only when you have your own money to give - not a credit card company’s (that will bleed you dry if possible). This used to come up so much. Go through your last year if statements - many are available online nowadays.

5. SWITCH to a card with a lower interest rate if available (sometimes the banks don’t tell you when they release them so just have a look on their website occasionally) or even a card with an interest free or repayment-free period for transferring to them - and pay what you would have paid if there was interest attached to make a dent in that debt.

6. PAY MORE more than your minimum monthly payment whenever possible and DO NOT SPEND on your card unless you can pay it back in full by the end of the billing period.

7. IF YOU MISS your monthly repayment for more than three months (time period probably varies per company), your account will be cancelled. This is recorded on your credit reference rating. After this, debt collections agents may be sent and bankruptcy proceedings may begin - which you have to pay for.

So don’t ignore it!!

John Kaiser Says:

July 6th, 2007, 9:51 am

Thanks for the excellent advice.

lori Says:

August 6th, 2007, 11:00 am

1. list what i owe

2. list what i earn

3. stop using credit cards

4. pay bills on time

5. pick one debt and add a bit more money to it

6. lower interest rates on credit cards if possible

7. change phone service

8. get basic cable or none (haven’t decided none yet)

9. make a grocery list and compare costs between brands

10. put off buying ______ (fill in the blank)

11. list basic needs each week

12. get a drawer or a little account to put 5 or 10 or 15 dollars a week into

13. declutter the house

14. budget for play money (just a bit)

Monica Says:

September 4th, 2007, 1:01 am

If the credit limit is higher but you don’t simply spend even more, that improves your credit rating because the ratio between your debt and the total available credit is part of the calculation. With a better credit score, you may be able to get things like a lower interest rate or a loan that you can use to pay your existing debt. But if you want to refuse an increase, be aware that some banks just give it to you automatically. In fact, if you check your balance online, you may just notice that the credit limit is higher before you even get a letter from the bank to let you know about that. And in such letters, they actually say that your spending power is higher…