Getting Out of Debt: Step Three

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You can view the first two steps for getting out of debt below.

Step One: Track your spending for 30 days

Step Two: Get 10% of your monthly income into the bank account

Step Three: Set Goals and Make it Permanent

The first two steps for getting out of debt have simply been appetizers.  They are not intended to move you in a long way out of debt, but to get you prepared to make that move and to make some serious progress towards eliminating your debt.  Photo by kainr

At this point you should know how much you are spending and what you are spending money on.  You should also be convinced that if you really set your mind to it you can save a little money.

Are you willing to be fully committed to getting out of debt?  People who are blogging about debt like Matt @ or Baker @ describe themselves using similar terminology – passionate and focused.  The reality is that there is no other way to get out of debt than to be completely focused on the task.

So here are the details for step three:

  1. Get rid of the kids (I don’t mean anything illegal) Send them off to a babysitter or grandparent.
  2. Take time to sit together and talk about your future (at least an evening).  Where do you want to be?  What do you want to be doing?  Dream a little.  Now ask yourselves, “Is debt allowing us to reach our goals or hindering us?” If you believe debt is hindering you, you just won a huge victory.
  3. Make a commitment to aggressively get out of debt - even if that means: Sacrificing vacations, not dining out, or saying no to something you always wanted.  Continue to remind yourselves that debt is not your friend.  Step three is all about commitment and resolve.
  4. Write it down. At the top of a piece of paper write – We are getting out of debt.  Under the title write the reasons why you are getting out of debt.  What is your pay off for getting out of debt.  Finally, write all the things you are willing to exchange for being debt free.
  5. Keep it accessible. Anytime you consider borrowing money for something or think about doing something extravagant, take a look at the paper and remind yourself of your decisions.

Test: Are you ready for step three?

Read the following two quotes by Bill Griffeth in his book 10 Steps to Financial Prosperity and pay attention to your response:

“Debt provides convenience, freedom, and flexibility to our lives. It allows us to buy goods and services by committing a portion of our future earnings to pay for them.”

“When it is used properly, debt can actually create wealth. Mortgages for example, allow us to live in a house before it is fully paid for, and auto loans allow us to drive a car before the final payment is made.”

  • If these quotes made you say “amen,” you’re probably not yet ready for step three.
  • If these quotes made you feel like you wanted to vomit and scream “heretic” then well done.  You are ready for step three.

Suggested Resources for helping your follow through on your commitment:

Baker shares how to pay off debt using the Debt Tsunami.  The approach basically involves paying off the debt that produces the most emotional pay off.  He also introduces the highest interest first method and the snowball method.

The snowball method as prescribed by Dave Ramsey in The Total Money Makeover encourages you to pay off the smallest loan first.  Then use that payment to help pay off your next smallest loan.  I suspect the snowball method is currently the most frequently utilized method.

The Highest Interest approach dictates that you write your loans in order by highest interest.  Start by paying off the loan with the highest interest.

The Moneyning blog compares the snowball and highest interest rate method here.

What about you?  What method did you find most helpful for getting out of debt?  Anyone currently using one of these approaches?


  1. says

    Great post! I think your point about committing to aggressively getting out of debt is key. I am amazed that many of my clients facing debt are unwilling for a short period of time to skimp on their cable package, cell phones, cruises and other things like this.

    Unfortunately, many act like these things are necessities. They don’t show evidence that they really want to get ouf of debt.

    I am a big fan of the snowball method. In my experience it works a little better and I can’t tell you how valuable the emotional lift is when you pay that small balance off first. It’s a quick victory that leads to confidence and passion to get the rest of the debts paid off.
    .-= JT@RedeemingRiches´s last blog ..Friday Finance Round Up – July 10, 2009 =-.

    • Craig says

      @JT Thanks for the great input. Unfortunately, it is true that time after time people need hit rock bottom before they are willing to change. Hopefully this post will give someone the motivation before everything falls a part.
      Thanks also for your input on the snowball method. “Victory = confidence + passion” I like that!

  2. says

    Thanks for sharing such great post, according to me after getting out of the debt trap you’ll be tension free, but for that you have to list out your expenses and try to remove all that which are not necessary. On the other hand you can find some other way to earn extra income and save it in safe manner. By following all this ways you can boost your credit score and get out of debt.
    .-= get out of debt´s last blog ..Guide On How To Get Out Of Debt =-.

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