Grow: Pay Off Debt in 3 Steps

I’m in no way a financial expert nor do I know your finances. What I am is a normal family man, who’s been using this method to successfully get out of debt for the past year or so and it works at any income level. Use this as a guide not a bible, you’re an adult be one. There is no easy way to do it, no magical formula just hard work and a lot of will power. I am not here to bullshit you, tell you it’ll be ok, or sell you some crap that is much more complicated than this needs to be. I’m just trying to help you achieve your financial goals.

To me there are many ways to get in debt, but there is only one way to get out of it. The only way to get out of debt is to pay it off, plain and simple. I have found the Dave Ramsey method to be a great kickstart to see some progress and to give you an idea of what it takes to free up the confines of debt.

Here are three proven ways my wife and I have really tackled our debt and put us in a comfortable position to live life.

1.Write all of your debt down to the cent. These are you target numbers, some would say hit the high percentage ones first. I’m here to tell you I’m someone who needs to see immediate progress so my list goes from lowest to highest dollar amount debt and I do not care about percentages. The way I see it, I wasn’t doing anything about it before but paying the minimums, so any way is better than that. So if you are like me and you wanna see results target the lowest amount.

2. Figure out your no shit income, if you are a waitress and work mostly off tips those tips are not true income you can base your budget off of. Your no shit income is what you can guarantee your boss will pay you for your no shit hours. This number also does not include overtime, bonus’, or commission. So if you are still unclear this is; your pay per hour x your normal hours per week (normally 40). Don’t get all crazy we will use your bonus’, overtime, and commissions it’s just not a guaranteed payment so you can’t plan for it in the future.

3. Next its time for the revolving bills; grocery, gas, heat bill, water, sewage, etc. These are the bills that unless you are homeless, vehicles, or don’t eat you will have every month. This is also the section where I put my fun night money, we will figure that out later though.

Now lets recap you should have a list of all your debt, your total income after taxes, and your incidentals. If you have never wrote that down and seen the numbers now is a good time to grab a drink of choice.

Now that we have all that let me give you the formula for the shock and awe. Add all your monthly bills from step one up, subtract that number from your total monthly income and the remaining balance is what you have to put toward step three. Here is an example

Total monthly pay $4,000.00 – Bills out $2,300 = $1,700 dollars

Now with that $1,700.00 subtract your revolvers

$150.00 for cell phone,

$150.00 mothly for gas,

$300.00 monthly for groceries,

$150.00 for electric

totaling $750.00.

Great we have $950.00 left.

Now this is where some Dave Ramsey rules come into effect you probably started your journey with a very little savings in your account so first things first get that savings account to $1,000.00. While this is happening continue to pay your minimum payments but all efforts are towards this $1,000.00 in savings.

Once the savings is in order at $1k, you need to figure out what you the amount you have left after each paycheck. Say for instance once you are done paying your bills you have $850.00 left now take out your 2 week allowance for groceries, gas, and maybe that fun night ( my wife and I use $75.00 every two weeks). Using our previous numbers you have $550.00 left. Now listen very carefully you NEED TO PUT THAT EXTRA MONEY ON THAT LOWEST BILL!!!

Like the day you are paid, don’t hold it, don’t do shit with it other than pay your lowest debt.

I will warn you that you may or may not have budgeted for “oh shit moments” that’s when you revert to savings and then the process starts over again till you are back to $1k in savings.

Once you have completely eliminated debt or have gotten to where one paycheck is paying your monthly bills you can now begin to add some more money to your savings. A great rule of thumb is to have at least 6 months worth of your cost of living in saving just in case something were to happen to your job.

“But what about my tips, bonuses, or commissions?” ADD THAT TO YOUR PAYOFF! Or you can add it to your savings, just don’t use it when you sit down to budget. It’s not guaranteed income.

Here are some tips I used to get the ball rolling and set me up for success.

  • Take out gas, groceries, and fun money in cash. It is way harder to spend it on frivolous stuff when it’s cash. As opposed to swiping that card.
  • Cut all but one card up. We kept one card that had the high allowance on it for real world emergencies. We are human and shit happens.
  • Set goals that can be obtained, do not think you’ll be debt free in a short amount of time. It does take time depending on how far you are in the hole.
  • Be real with yourself, if you aren’t comfortable with the amount going out throw some in savings, but for the love of god stop borrowing and pay shit off.
  • Buy with cash if something comes up use your extra bill money to pay for it before you swipe a card.
  • Use the 2 day rule on all bullshit purchases over $50. Go home think about it, do you need it or want it.
  • For the first two to three months till you figure out what it cost to live take the remaining money and set it aside then make that big payment at the end of the month. This way if you thought you could live off of $100 a month for groceries and you found out it wasn’t possible you can move money around to feed yourself.
  • Use online grocery shopping my wife and I have damn near have taken a 25% off our normal grocery bill, because we aren’t walking the isles we just order what we need grab it up and go.

Lastly remember if you fall off the wagon it’s not the end of the world. Get back on it and get after it.

Click here to buy Dave Ramsey’s book Total Money Makeover

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