3 Golden Rules to Rid Yourself of Debt
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.
1. 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?
2. 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.
3. 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?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Its definitely easier to spend than to pay off debt. But, paying off your debt really comes down to discipline. You need to have the focus to not only restrict your spending, but also put a re payment plan in place that will help you get out of debt in a reasonable time frame.
MOA – You look at the numbers, like me, so I’m guessing investing covers your costs of the mortgage, and then some… so it is different for you and I. For most others, they do not do this exercise as numbers “scare them”, so paying debt makes more sense then as it is guarenteed, and not just a gamble that one might covere the other… Now since you do have a mortgage, are you making it tax deductible? I did something like the “Smith Maneuver” as it is now so coined, before it was coined. I basically paid out my mortgage with my investments, and booked an HELOC against the house, there by making my mortgage tax deductible… Saved a bundle 🙂
@The Dividend Guy
Actually that’s a very key step in eliminating debt. Gail Vaz-Oxlade often makes her clients get a second job (or third) to get at the problem. The extra income can go straight to the debt. And with more money coming in, once the debt is paid, it’s less likely you’ll go back into debt either.
As someone who was in debt not too long ago, and someone who’s become a reformed spender, I can say that debt scares me. That’s why I make debt paying a habit.
For a reformer spender, you’ve done very well! 🙂
I enjoy making paying debt a habit, I like focus.
“the most important rule of personal finance – spend less than you make…” Actually this is the ONLY rule to persoanl finance. It is also basiclly the rule of retirement… Spend less than you have coming in… On the debt point, I find it funny how many people focus on saving and investing before paying down debt – paying down debt is a guaranteed return! Now once you have equity, then feel free how leverage can work in oyur favour, but first an foremost tackle the debt. Cheers.
True Phil.
So what about me? I have a mortgage, yet I also invest? That OK or not focused enough on debt? Thoughts?
I have a goal to reduce debt this year and I have vowed to never allow my debt to increase. There is no point paying it down aggresively just to run it up again because of some little emergency.
I am working on the emergency fund and debt repayment so I get get out and keep out of the dreaded debt.
Good point Jane, no point in paying it down and then having more debt pile on at some point. I hope to be debt free forever in 9 years.
You are going to laugh but I’ve found what really works for me: focusing on making money instead of trying to pay off my debts!
The more money I make, the more I put on my debt. But my focus is not to cut on my expenses or chase bargains; I simply focus on making more money 🙂
Ha, laughing but in a good way. I suppose you got it right…focus on making money and debt will take care of itself 🙂
Good call.
Great rules. For us it’s spending less than we earn and budgeting the money. Putting our needs first is most important. We like to save cash to pay for bit ticket items rather than use credit.
No wonder you have your mortgage done, and I don’t, yet 🙂
There is no such thing as OBVIOUS when it comes to DEBT. DEBT is obviously not a good thing, yet, we all seem to have it? WTF?
Debt is not a good thing but it is a necessary evil, borrowing to buy a house for example. The intelligent folks never get in too far over their heads, they pay these debts off rather quickly. I suspect you are one of them!?
These are great rules to live by. I think if more people followed these simple rules, we probably wouldn’t have so much debt.
I hear ya. I still owe a bundle on my house – and why is that – because I didn’t necessarily follow my own rules. I hope to have my mortgage paid off in 9 more years.
I don’t think you can ever hear “spend less than you make” too often. It’s golden advice. Lately the tip for needs versus wants has been helping me curb spending. Sure there are many things I would like to have, but I feel much better about my purchases when they are something I really needed.
Yes, that’s the golden rule that transcends all other rules. I know I spend too much as well now and then. I need to be more selective in my spending.
These are golden rules indeed. We have to follow rules to eliminate debt. We also have to pay our debts religiously.