Your Money_ The Missing Manual - J. D. Roth [29]
I first got into debt in the fall of 1987, when I was a freshman in college. I used a department-store charge card to buy a fancy electric razor and a bottle of cologne. (I had to impress the sorority girls, after all.) It was all downhill from there: By the time I graduated, I had several thousand dollars of debt. Within just a few years, that had grown to over $20,000. I had a problem.
I did my best to turn things around using the standard advice (like "pay your high-interest debt first"—Destroying high-interest debt first), but nothing seemed to work. It didn't help that I was a compulsive spender (Curbing Compulsive Spending). By the fall of 2004, I'd accumulated over $35,000 in consumer debt, and I felt like I was drowning.
When I decided to turn things around, I used the exact methods described in this book: I set a big goal (be debt-free within 5 years), and broke it into sub-goals (start by paying my smallest debt first). I used a "spending plan" (I refused to call it a budget). I tracked every penny that came into or went out of my life. I cut spending and boosted income. And I used the debt snowball (which you'll learn about on Destroy Existing Debt) to destroy my debt.
It worked! In December 2007, 39 months after I'd started, I paid off the last of my $35,000 debt. It took a lot of hard work to get there, but it felt awesome when I'd finished. (Along the way, I shared my progress on getrichslowly.org.)
So, I don't know for sure that these techniques will work for you. But I know from experience that they worked for me. And I'm confident that if you try to apply them to your life and you're patient, you too can kick debt to the curb.
The Basics of Debt Reduction
Many people look for magic bullets to get them out of debt: They play the lottery hoping for a big payout, or they listen to the snake-oil salesmen on TV who promise instant solutions. The truth is, there aren't any instant solutions. There are, however, some time-tested, proven techniques.
Real debt elimination involves three main steps: Stop accumulating new debt, establish an emergency fund, and destroy existing debt. In the next three sections, you'll learn about each step in turn.
Tip
Being in debt because of student loans or a medical emergency is different from being in debt because you spend too much. If spending isn't your problem, you can skip to the section on establishing an emergency fund (Establish an Emergency Fund). For advice on paying off student loans, check out http://tinyurl.com/st-loans; and you can find an article about medical debt from Smart Money at http://tinyurl.com/doc-debt.
Stop Accumulating Debt
If your debt is out of control, it's because you have a negative cash flow—you're spending more than you earn. The first step on the path to debt-free living is to reverse this cash flow. For most people, that means it's time to stop using credit; credit makes it way too easy to spend more than you have.
Nobody needs credit cards. Don't try to make excuses for why you have to keep them: You don't need them as a safety net, for convenience, or for cash-back bonuses—you can get by without them. (Turn to Your Credit Report to read about someone who lives without credit cards.) If you've had problems with credit cards, the worst thing you can do is hold on to them. It's like an alcoholic keeping a couple beers in the fridge in case he gets thirsty. When your debts are gone and your finances are under control, then you can get a credit card; in the meantime, make do with a debit card.
It can be tough to quit credit cold turkey; I know from first-hand experience that it's easy to find reasons to whip out the plastic. If you're really struggling with credit-card debt, your best move is to remove the temptation completely: Destroy your credit cards. Don't put them in a desk drawer, and don't freeze them in a block of ice; you're