Finance Fridays

Ok - I know today is not Friday but I am busy tomorrow and wanted to start on my new idea. Finance Fridays are my days to exercise some of the knowledge I have recently collected in my years in college. This is purely for my benefit. I do not want to forget the things I have learned and I love talking about finances. Today we will start with the basics. My opinion on how to get out of debt. Disclaimer: I am by no means a professional, these are just my thoughts.

Steps to get out of debt:

1. First come up with a budget. The key to a budget is to spend less than you earn. This will help you itemize your expenses and debt.

2. Start with the smallest bill. Put all of your energy to this bill - if minimum payments need to be made to other larger bills then make those payments but any extra money should go to the smallest bill.

3. Once the smallest bill is paid for you take that money and apply it to the next smallest bill. For example if you were paying $50 on bill 1 and $50 on bill 2 then once bill 1 is paid for you are now applying $100 to bill 2. Continue to do this until all of your debt is paid.

4. Put money into savings. It doesn't have to be a huge amount, just set aside money every month or every paycheck. Whichever you prefer.

That's it. Pretty simple, hunh? You want to feel like you are progressing. A lot of times we see huge bills and we think - it's impossible! So, we just tack on more debt to our already large account because we think "what's the point in trying to pay this off?" That's why we start with the smallest bill. Once you get that bill paid off you think to yourself, "Hey, I just got an entire bill paid! Woohoo. And now I can take that money and pay for the next bill and it will get that bill out of here even faster." This psychology works - I've tried it myself. If you dive headfirst into your largest bill then you feel overwhelmed and you feel like you aren't making a dent.

The last step is probably the most important. If you are spending all of your money on debt then you start to get depressed. There is no motivation to get the debt paid off or to avoid more debt. Putting money into savings is your reward. At the end of the month when you look over your accounts you will be surprised how happy you get over that little bit of money in savings.

At this time I must give David Austin credit. He has been my mentor in debt management and budgeting and is one of the strongest reasons why I chose the degree I did. A lot of my debt/budgeting philosophy comes from him. Thank you David!