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I remember it like it was yesterday: September 7, 2007. This was the day I sat down at my kitchen table and came face-to-face with my finances. My divorce had been final a few years prior, but I still felt as if I hadn’t made any financial progress. Fifteen minutes later, my fear was confirmed. I sat in stunned silence—for the first time realizing that I had amassed six credit cards and was in $92,514.54 worth of debt. I had officially become a statistic.
But I’m not alone:
• The average American household carries $18,654 worth of debt (not including mortgage)
• 1 in 7 Americans carries 10 credit cards!
• The average household carries some $8,000 in credit card debt alone, and
• Even as we press the reset button on the economy, consumer credit increased almost 2% this past October
Fast forward 3 years . . . and I’m now debt free! I started with one goal in mind—financial freedom—and ended with a common-sensical approach, outlined by Dave Ramsey, that others can use to get out of their own financial ruts.
Here’s the plan:
- Step #1: (After awakening from my fainting spell) List out all debts from smallest to largest.
- Step #2: Cut up your credit cards. Then exhale.
- Step #3: Now close the accounts. Cushion the temptation to re-open your revolving credit accounts by putting away a small emergency fund for those inevitable rainy days.
- Step #4: Begin paying off your debts one by one. (HINT: Start with from the smallest balance not the largest interest rate. This will make sense later.) Pay off everything except the house.
- Step #5: Once consumer-debt free, revisit your emergency fund and take it from mini to maxi. Stockpile 3-9 months of living expenses.
- Step #6: Now with extra discretionary cash each month, invest 15% of your monthly income into a retirement fund. (We’ll discuss the right investment vehicles later.)
- Step #7: If you have kiddos, fund their college savings.
- Step #8: Take leftover income and throw it towards your mortgage payment. Pay off your home early.
- Step #9: Live in financial peace and give like no one else!
TODAY’S BITE-SIZED TO-DO:
Determine that you want to make a change. Then take inventory of all your consumer debt. Count it up—everything from your Victoria’s Secret store card to your car and student loans—and circle the number. Put that number somewhere in the open where you’re forced to see it every day. (Don’t worry . . . if you follow these steps, it won’t be there for long.) List your debts from smallest balance to largest balance. You should have two columns—one that lists the vendor name and the other that lists the balance.
Every week for the next nine weeks, we’ll tackle another step and help you create your own journey to becoming debt free. I even took a few detours that helped to speed up the process and will share those along the way. Believe me . . . if I can get to the other side of the mountain, so can YOU!