Do you want to get out of debt? Follow this simple but powerful plan, and your finances will be in a much better place in just six months.
1. Stop using credit. This includes credit cards, paying on time, loans, etc. Just don’t do it. People spend more money when they use credit instead of cash, and there is all of that interest that compounds.
2. Sit down with your spouse or another trusted person to whom you can be accountable. Announce your plans to get out of debt and make a commitment to meet at least once a month to review your debt and your plan to get out of it.
3. Start tracking your money. This is the first step to realizing where it is all going.
4. Develop a zero-based budget. Start with the basics: housing, food, utilities. Put whatever you need or want in this budget including fun money. But once it is there, don’t go over it. A zero-based budget is one where each dollar coming in is accounted for, even if it is just earmarked for a savings account.
5. Set up automatic payments for your regular monthly bills.
6. Start a cash envelope system. You’ll need this since you aren’t using credit cards anymore. Take out whatever you need for the week in cash. You can separate it out into different envelopes, such as groceries, dinner out, etc.
7. Make a plan to start paying off your debt. List the smallest bills first and then figure out how much money you can throw at the first one on the list. When that gets paid off, apply that money to the next bill.
8. Start an emergency fund, so you will be prepared for unexpected expenses. Having the money ahead of time is peace of mind and makes it less likely that you will need to go into debt.
9. Start a “sinking” fund for items that you know you will need to replace or buy within the next year.
10. Don’t buy anything, be it a coffee or a television without thinking it over first. Institute a 24-hour waiting period, and make sure that it is already in the budget somewhere.
11. Review your progress and be proud. Tape a list of your goals and successes to the fridge or carry them in your wallet.
12. Prevent feeling deprived by rewarding yourself with something inexpensive when you reach a goal, such as an ice cream cone or an extra hour to do something fun such as read a novel.