Let’s face it, debt sucks.
The idea of owing money to others, a financial obligation, doesn’t sit well with me. I suspect if you’re reading this blogpost debt doesn’t sit well with you either. Although I think some debt is a necessary evil, say to eventually own your house or car, I’m suggesting debt must be managed or it will manage you. Maybe some folks are in severe debt because they have no other choice and I definitely sympathize with that, life happens and some people are put into predicaments far beyond their doing. They need help to get out of trouble. In other cases, you make your own bed.
I hate debt because I must use cash flow to pay it off. Debt takes money out of my pocket, money that could be directed towards savings or simply enjoying life the life I want to lead; financial health can provide freedom.
To rid yourself of debt, you need some rules to follow and the best rules are usually the easiest ones to remember. Today, I’ve provided my three golden rules to kill off debt, rules I’m trying to practice myself.
Make needs trump wants
The reality is you don’t need much to live from: some food, some clothing, some shelter and of course your health. An expensive dinner out on the town or a new car, are definitely wants. Nothing wrong with wants. Life is meant to be lived but if you’re going to spend money consider answering the following questions first:
- Am I neglecting a need with this want?
- Is this want going to add value to my life?
- How will I feel after the purchase?
Make paying debt a habit
Take some money, any amount money and sock it away every paycheck towards your debt. It can be $5 or $50 or $500. Make paying debt a habit and keep the habit alive. Pay off your high interest debt first and keep making a debt payment in highest interest pile if you can. This has been our strategy for years. When you’re done with that obligation pay the next highest debt in line until you have only one major debt, potentially your mortgage. This is where we are now. Keep your payment plan going and work on increasing your payment frequency as you gain momentum.
Feel free to spend just spend less than you make
Yes, I wrote it, the most overstated but the most important rule of personal finance - spend less than you make. This rule transcends all other rules. Budgeting is a great debt management tool but it’s difficult to sustain long term. I confess we struggle with it now and then. Instead of sticking to a rigid budget every month for utility bills, groceries and other living expenses we just focus on paying and accelerating our debt obligations first and then using what’s leftover to spend.
I recognize these are fairly obvious rules, just like we all know driving too fast is dangerous and excessive smoking and drinking is bad for your health. Still, some of us do these things now and then because we’re human and we’re flawed. We’re bound to make mistakes and avoid the simple path. In the end, because these rules are straightforward, they give us hope. The same goes for my golden debt management rules. Simple works more often than not and anything we can do that’s simple for as long as possible usually gives us a fighting chance.
What are your personal finance rules for debt management?