10 Steps Toward Real Financial Freedom – Book Giveaway!

We are giving away a copy of Financial Recovery: Developing a Healthy Relationship with Money by Karen McCall. Check out this article from the author and donít forget to leave a comment for your chance to win the book!

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

Step 5. Reduce Debt with a Proven Strategy

Once debt is stabilized and youíre building your periodic savings, youíre ready to start reducing debt. Designate whatever amount above the minimum that you can pay toward just the targeted debt. When thatís paid off, roll over the payment amount to the next debt target, until youíre eventually debt-free.

The higher your debt, the slower the process of debt reduction will be. But please, reassure yourself: going slowly in the right direction is enormously better than going in the wrong direction at any speed.

Step 6. Build Your Safety Net

Itís important to have a plan for the possibility of an interruption of income. A Safety-Net Savings account is designed to cover your living expenses if your income is interrupted for any reason. Your Safety-Net account is to be used only if you have an interruption in income. Once youíre no longer paying off debt, you can roll that money right into savings without changing your monthly spending plan one bit.

Acrobats on the high trapeze always have a safety net below. This offers the acrobats not only protection but the confidence to really fly. Safety-Net Savings protects us, but it also offers us the freedom to create new career possibilities rather than feeling trapped in jobs that make us unhappy. Thatís why I think of this account as a ďfreedom fund.Ē

Step 7. Celebrate Being Debt-Free!

Living debt-free may seem like a fantasy, but I have celebrated this reality hundreds of times with people who have used the saving your way out of debt plan. Clients have literally danced in my office after they made their last debt payment. Iíve danced with them! Be sure to celebrate your accomplishments. You deserve it.

Step 8. Plan for the Future with Long-term and Investment Savings

Periodic and Safety-Net Savings not only keep us out of debt but protect our investment and retirement accounts. With Periodic and Safety-Net Savings in place, your long-term savings are truly secure.

Step 9. Resist the Seduction of a Zero Balance

Once youíve eliminated debt, those big zeros on your credit cards can call to you. Instead of succumbing, use your periodic savings to pay for non-monthly expenses. Learn to delay optional purchases until your savings grow enough to make them. Enjoying a special purchase that is made without incurring debt doubles the pleasure.

Step 10. Enjoy Real Financial Freedom

By leveraging the power of savings, you can free yourself from debt once and for all. Debt-free and secure, you can experience financial serenity. Imagine a life without being confined by the cage of debt and the stone walls of worry. Saving your way out of debt is a powerful tool in securing a healthy relationship with money at whatever your income level.

Karen McCall is the founder of the Financial Recovery Institute, an international organization for financial counseling training. Her latest book is Financial Recovery: Developing a Healthy Relationship with Money. More information at www.financialrecovery.com

Based on the book Financial Recovery. Copyright © 2011 by Karen McCall. Reprinted with permission of New World Library, Novato, CA. www.newworldlibrary.com

WIN THE BOOK! Leave a comment below for your chance to win a copy of Financial Recovery: Developing a Healthy Relationship with Money by Karen McCall. Winner will be announced June 7. Good luck!

Related: 5 Ways to Get Out of Debt, 18 Tips for Living Within Your Means, Save Money Like Grandma


Lia R.

Please email Samantha at samanthas@care2team.com to claim your new book. Thanks to everyone who entered!

Love This? Never Miss Another Story.


Kerrie G.
Kerrie G.3 years ago

Thanks for the tips!

Jacqueline Baruch

Getting out of debt is a great thing. I limit my monthly spending but I want and need some small pleasures but I control the amount I spend. Jobs are scarce in my area and I can not afford a car so my search for work is limited. Working hard to save. Thanks for this info.

Eternal Gardener
Eternal Gardener4 years ago


Ron G.
Ron G.4 years ago

I need a debt diet. please help!

Angi W.
Angi B.4 years ago

Sounds like a good book and a smart plan! Thanks for sharing!

Jim N.
James N.4 years ago

Debt's an awful thing. Hope the younger folks are paying attention. I think a good rule is to avoid it at all costs and pay cash for everything. I mean everything... except emergency medical stuff. Other than that, everything.

It's like losing weight, burn more calories than you take in...

Bring in more money then you spend. Voila!...

But what do I know? I'm tryna get the book!

Elizabeth Brawn
Elizabeth Brawn4 years ago

very useful good article ....i like no.7

Howard C.
.4 years ago

I enjoyed the article, it has taken me until age 50 years to finally be free of all debt. It was a hard path to follow but it feels good know and I am hoping to retire early as a result.

Marla S.
Marla S.4 years ago

Appreciate the advice. I've read many columns, websites, etc. on how to reduce my debt but this column had more information (and more useful information).

Rachel H.
Rachel H.4 years ago

I really need to remember this: "...going slowly in the right direction is enormously better than going in the wrong direction at any speed."
I like that comment a lot!!