Life After Debt

Imagine your life without any debt at all… No credit cards, no car payments, no student loans, no furniture payments, and even (gasp!) NO house payment! What could you do with all that money that you’re currently sending out in payments every month? Think of how much you could save, give and spend! You could pay cash for vacations, cars, and all kinds of fun things! …So, did you get a brain cramp attempting to imagine that? Many people do!

Debt is the norm here in America. (Just look at our National Debt level! No, never mind… that will make all of us depressed.) Most people think that in order to have a financial life, you should have a credit card (or ten), and at least a car payment. You’ve got to build your credit, right? Let’s think about this. What do you need a good credit rating for? You need it to borrow money. But what if you don’t borrow money? What if you just pay cash? Then there would never be a need to check your credit. The norm here in America is broke, and that is because we are being crushed under a mountain of personal debt. Dave Ramsey says it best: “Normal is broke. Be weird!”

So, you’re in debt, and you want to get out. But it looks hopeless… Where do you start? The first thing you need to do is STOP borrowing money! Just as you can’t dig your way out of a hole, you can’t borrow your way out of debt. You need to stop borrowing and start getting serious about paying down your debt.

The best way to systemically “attack” your debt is to use the Debt Snowball. You list your debts from smallest to largest. You make minimum payments on everything except the smallest debt. Attack the smallest debt with all the extra money you can find! Have a yard sale, work some overtime, sell something on E-bay. Once you cross that one off the list, take the money you used to pay on the smallest debt and add it to your minimum payment on the next smallest debt. Keep doing that until everything is paid off except the house.

Many people ask why you don’t pay the one off with the highest interest rate. Wouldn’t that be the logical thing to do? Yes, but this isn’t about logic. If it were, we wouldn’t have so much debt in the first place! This is about behavior and emotion. If we attack the little one first, we can “kill” it in a month or two and have a quick victory. This pumps us up and keeps the momentum going to attack the next one.

It takes most people about a year or two of concerted effort to get their debts paid in full. Is it easy? NO! Is it worth it? YES! Just ask Jason (pictured) and Charity Loftin, graduates of Dave Ramsey’s Financial Peace University. The Loftins just paid off their final credit card in May. It took them about 18 months of hard work to pay off their non-mortgage debt, a total of $35,000! Now the Loftins can say, “We’re DEBT FREE!” You can get there too, if you decide to start the journey. There truly is “life after debt”!