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Saving Your Way Out of Debt: 10 Steps Toward Real Financial Freedom
By Karen McCall
Imagine how it would feel to have no worries about debt. There is a simple but powerful way to get out, and stay out, of debt. I call this strategy ďSaving Your Way Out of Debt.Ē
People get out of debt all the time. As with yo-yo dieting ó when weight is lost, then regained ó people often pay off debt, and then old habits resume and they find themselves carrying a heavier debt load than ever. The real challenge is staying out of debt. You probably spent your way into debt. Now itís time to save your way out of debt.
Step 1. Avoid Deprivation Mode
People assume that they must cut out everything that is fun or pleasurable until their debt is paid off. Leaving essential emotional and physical needs unmet sends us into deprivation mode. Deprivation often leads to overspending. Overspending often leads to more debt. Identifying your essential needs and building a spending plan that meets them (even in simple ways that donít involve spending money) is vital during the process of eliminating debt.
Step 2. Stop the Leaks by Stabilizing Debt
Prematurely paying down debt while still using credit cards keeps you stuck in the debt cycle. This is like sitting in a boat with a grapefruit-sized hole in the side and bailing out the gushing water with a thimble. The most foundational step to freeing yourself from the debt cycle is debt stabilization. Itís nearly impossible to stabilize your debt while you continue to use credit cards. Stabilizing debt simply means that you stop adding to it.
Step 3. Build a Firm Foundation with Periodic Savings
One common myth is that we canít begin saving until we are debt-free. In fact, saving right from the start is the key that will free you from the yo-yo of the debt cycle. Start by building periodic savings. This is money available to meet periodic, non-monthly expenses, such as car insurance, taxes, and family vacations ó thatís right, the obligations and the fun stuff. Life happens. Surprises always crop up. Without savings, we resort to using credit cards. Then weíre back in the leaky boat, bailing away.
How do you save when money is already tight?
- Make minimum payments on all but one targeted debt.
- Reduce optional spending for now.
- Look for creative ways to bring in more money.
Saving your way out of debt may seem slow at first, but eliminating debt forever will pay for itself a thousand times during the course of your lifetime.
Step 4. Use Periodic Savings Guilt-Free!
Most of us feel that savings are not to be touched. Periodic savings are meant to be used, guilt-free, to pay for periodic expenses rather than charging them.
Next: steps 5-10