How to get out of debt

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Here’s What You’ll Learn

I’ll show you every single step to achieve debt freedom, plus answer some of the most important questions most people tend to ask me when they’re putting together a get out of debt plan.

You’ll learn:

  • How to get your mindset right to start getting out of debt.
  • The 6 steps you need to take to get out of debt for good.
  • How to put together a debt freedom plan customized to your individual situation using these steps.
  • The three types of resistance you will encounter on your debt free journey.
  • Common mistakes– why people fail at getting out of debt.
  • How to get out of debt even if you have a low income, no money, and no credit.
  • How to get out of debt faster by doing just a couple of simple things to accelerate the process.
  • Why some popular options for getting out of debt don’t work.
  • What to do after you get out of debt.

This is a long post, but the payoff is huge!  So let’s get started…

How to Achieve a “Get Out of Debt” Mindset

You’ll never succeed at paying off your debt unless you have the right mindset going in.  That’s why it’s massively important to understand a few basic things about the debt freedom process.  You have to prepare your mind for what’s ahead, understanding at the beginning that you have to do a few basic things to set yourself up for success.

4 Ways to Achieve a “Get Out of Debt” Mindset

Here are four of the most important things you’ll need to do to get started with the right mindset:

  • Take Responsibility- Be honest with yourself.  It’s easy to deceive yourself into believing that being in debt is not your fault- most of the time it is.  Take responsibility for what you’ve been doing wrong, even if you’re not totally sure what that is yet.
  • Decide You Will Never Go Back- Tell yourself that you’re done with old habits and it’s time to change.  Your brain is extremely resistant to changing established patterns, so you have to repeatedly do things to force your brain to change.  Tell yourself out loud “I’m done with (debt, credit cards, overspending, etc.)” and “I’m going to (cut up the cards, spend less, etc.)”. There’s something about saying it out loud that helps your brain to change.  The more senses you engage, the better effect it produces on your mind and spirit.
  • Do What You Say You’re Going to Do- Once you engage your brain to start a new way of thinking, it’s time to start taking action. Start spending less, saving more, doing a budget (I’ll show you how below).  Do whatever you’ve been telling your brain you need to do to succeed.
  • Stay Committed- Any time you commit to change, challenges are inevitable.  Stick to your guns, resist temptation to go back to your old habits, be consistent, and keep moving forward.

Your Money Mindset Makes a DIfference

Getting your mindset right makes a huge difference in whether or not you succeed at getting out of debt, so pay close attention to the tips above.  I’ve also written a ton of posts about money mindset.  Here are some of the best ones:

Creating a Get Out of Debt Mindset- 4 Tips

Use The 4 Keys of Consistency to Get Out of Debt

Living Paycheck to Paycheck on a High Income- How to Change Your Mindset

You Have to Get Mad

One thing I recommend that works well with changing your mindset, is to get mad at your debt.  This means you should get angry about your debt and the effects it’s having on your life.  Decide that once and for all, you will stop living the paycheck to paycheck cycle for good!

When you get your emotions involved, it gives you extra motivation to change.

You 100% have to decide that you want to get out of debt no matter what, and that once you're done you'll never go back.  It's time to take no prisoners, and get mad enough at your debt to kill it for good.

You Have to Go Naked

Another important thing I highly recommend before you start getting out of debt, is to go naked.

No, this has nothing to do with moving to one of those creepy “clothing optional” communities!  What I’m talking about is going naked with credit.

If you really want to get out of debt for good, you gotta kick credit to the curb!  This means cutting up credit cards, paying cash for your stuff, and never using consumer debt to finance your life.

If you want to get out of debt, you have to get naked! What that means and how it can make your financial life shine!

Going Naked with Credit is Uncomfortable

Just like going naked in public, going naked with credit feels really weird.  I remember when Angie and I cut up our last credit card- We felt like something was off kilter.  Even though we had an emergency fund to fall back on, it was just strange.

We got over that real quick!

We realized it was because we've been conditioned to think that we need credit to make it in life.  We've been told that if we don't have credit available we could end up in financial disaster.

But the total opposite is true!  When you cut up the credit cards and decide you're never going back, you become more financially free than you've ever been!

You Have to Have a Different Mindset

Going naked plays a huge role in changing your mindset.  It’s the total opposite of what most people do.  But if you want to get out of debt for good, you must be a little different.  Normal is for broke people!

I know going naked sounds like it might not be achievable, especially if you have a low income.  Don’t worry, you can do it- just follow the plan I lay out for you.  I’ll talk more about getting out of debt on a low income below.

More Tips for a Debt Free Mindset

Here are a few more tips you can use to start changing your mindset about money as you begin your debt free journey:

Stop Worrying About Your Credit Score

The media and corporate America will tell you that you need a credit score to rent or buy a house, purchase a car, or get a job.  That is complete B.S.!  A credit score is not necessary to live in the modern world- it’s only a measure of how well you use debt.  Here are a few articles I wrote that will explain why this financial mindset is so pervasive, and how you can overcome it:

You Do NOT Need a Credit Score

How to Live Without Credit Cards- It’s Easier Than You Think!

Living Without a Credit Score- Your Questions Answered

Additional Articles on Money Mindset

Don’t Believe the Myth That You Can’t Get Out of Debt on a Low Income

Too many people believe debt is just a normal part of life.  They buy into the financial myth that the average person with a low income will never be able to live debt free.  They believe the system is rigged and that it’s impossible to get ahead.

It’s not true!

When it comes down to it, it’s not about how much money you have or don’t have, it’s about the plan.  With the right plan, some intestinal fortitude, and time, anyone can become debt free, even with a low income and no money.  Debt freedom is not just for people with a high income or some special knowledge.  Anyone can achieve debt freedom if they really want it!

You CAN get out of debt- even if you have a low income! Read this post to find out how it's possible + every step you need to get out of debt for good.

Learn the Difference Between Wants and Needs

I think a lot of people are in debt because their ideas of wants vs. needs are skewed.  In prosperous countries (especially here in the US) we’ve become so comfortable that we don’t know what our needs really are.  What we need are the basics, and everything over and above those are wants.  Here’s a quick list of needs to help you reset your financial mindset:

  • Health
  • Food
  • Water
  • Shelter
  • Safety
  • Love
  • Freedom
  • Spiritual connection
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You don’t need cable TV, a new car, a big house, a credit card, a big TV, good credit, or expensive clothing.  Those are wants that you can have if you can afford them.  Don’t get me wrong, I have no problem with having nice things.  I own some high-end luxury items myself- paid for with cash!  But when your things are owning you instead of you owning them , you need to reevaluate what your wants vs. needs really are.

Learn the Difference Between Abundance and Scarcity

I used to be guilty of having a scarcity mindset.  At one time, I was so defensive financially that I missed out on several opportunities to make a lot of money.  Unfortunately, my money mindset was so focused on not spending money that it ended up costing me money and opportunity in the long run.

Over time, I’ve come to realize that God made this world a place of abundance, and we have to be willing to tap into it.  Learn to have an abundance mentality and it will serve you well while you’re getting out of debt (and long after!).  Here’s a great post to help with that:

Abundance vs. Scarcity -Your Mindset Makes All the Difference

The 6 Steps for Getting Out of Debt for Good

So now that I’ve covered the preliminary stuff, I’ll give you a quick overview of the six steps to get out of debt.  Then I’ll cover each one in-depth and show you how to create a step-by-step, customized get out of debt plan for your unique situation.

Here are the six steps:

  1. Make a budget
  2. Create a starter emergency fund
  3. The Debt Rocket
  4. Create a large emergency fund
  5. Tackle the big stuff
  6. Build wealth like crazy

Step 2 to Get Out of Debt- The Beginner Emergency Fund

Ok, at this point you’re getting used to doing a monthly budget and starting to use the envelope system.  It probably still feels a little weird starting all these new habits, but your beginning to get the hang of it.

You are not attempting to pay off any debt just yet.

Now your focus should be on getting together a small emergency fund of $1,000 (or $1,500-$2,000 if you have a high income).

Yes, I know.  You’re in serious debt and you’re living paycheck to paycheck, how can you be expected to come up with $1,000 cash?  I’ll address that in a few minutes.  First, let’s talk about why you need an emergency fund in the first place.

Why You Need an Emergency Fund

Emergencies are going to happen.  Especially if you’re trying to get out of debt!  Your beginning emergency fund ensures that you can deal with most emergencies with cash instead of being tempted to add to your debt.

An Emergency Fund is Insurance

Remember, you’re naked now!  You’ve sworn off using debt to fund your life, so you have to do things differently now.  A cash emergency fund is insurance against the inevitable bumps in the road that can derail your plan for getting out of debt.

Your Emergency Fund Changes Your Mindset

Two thirds of people live paycheck to paycheck, which means most people don’t have two nickels to rub together.  Because of that, the average Joe is forced to resort to credit cards and loans when the inevitable emergency comes along.  Of course, that results in more debt!

But you’re not doing things the average Joe does anymore.  An emergency fund helps you change your mindset about how you deal with the unexpected.  You are now self-funding your life instead of relying on other people’s money to get by.  It’s yet another step you’re taking to become financially self-reliant instead of being a slave to the lenders.

How Do You Get Money for an Emergency Fund?

I completely understand- you have a ton of debt, maybe your income isn’t where it needs to be, and you don’t believe you can come up with a cool grand for an emergency fund.

You can do it… you may just need to get a little creative, that’s all!

Read “9 Ways to Build Your $1,000 Emergency Fund Quickly”

Clean out your closets and your attic, then sell all the junk you don't need in a yard sale or on EBay.  Maybe you can pick up a few extra hours at work.  Clean some houses, cut some yards, babysit, or bake cookies.  Use any job skills you have such as computer skills, accounting, or bookkeeping, to make extra money to put into your emergency fund.

There is always a way (Here’s a list of my favorites)!

Your Budget Helps Build Your Emergency Fund

By the way, at this point in the process, you're already doing a written budget.  My experience has been that when you started doing a budget, you started using your money much more efficiently.  Inevitably, you’ll find at least a couple hundred dollars every month you didn't know you had.  You can use that to help build your emergency fund as well.

What Constitutes an Emergency?

When you know you have money available to fall back on, it can get a little tempting.  Your best bet is to know what an emergency really is before it happens, so you don’t screw up.

An emergency is not:

  • A sale on those cute shoes you’ve been wanting for 6 months.
  • A new scope for your hunting rifle because deer season starts next week.
  • A new game system because your current one died unexpectedly.
  • A busted TV.
  • A broken IPad (unless it’s absolutely necessary for work or school).
  • Spending money at a restaurant because your friends wanted to go out and you had no money.

A real emergency is:

  • When little Johnny breaks his arm.
  • Your hot water heater dies.
  • The basement flooded.
  • You lose your job.
  • The refrigerator dies.
  • The roof springs a leak.
  • Your HVAC dies.
  • You get injured and have to go to the ER/see a doctor.

Don't Be Tempted!

Real emergencies are the ones that affect your health, the roof over your head, your safety, your ability to eat, or your ability to work.  Never be tempted to use your emergency fund for anything else!

Yay, that’s it for Step 2- Let’s move on to Step 3 for Getting Out of Debt!

Think you can't get out of debt? Anyone can, even if you have a low income, no money, and no credit… This epic post gives you detailed instructions to get the job done permanently!

Step 5 to Get Out of Debt- Build Wealth

Step 5 is where things really start to get interesting- now it’s time to start building wealth like there’s no tomorrow!  When you have no consumer debt sucking you dry, it’s easy to start building tons of wealth and watching it grow exponentially!

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There are a few things you can do at this point to fund your future:

  • Aggressively put money into savings and investments for the future.
  • Pay off the house faster.
  • Save more for college for your kids.
  • Or a combination of the ideas above.

Some Suggestions for Building Wealth and Funding Your Future

Remember, getting rid of your consumer debt is just the beginning.  Now you can start multiplying your money, building your future, and gaining financial freedom.  This is the fun stuff!

Here are a few ways you can do it:

  • Invest- Put all your money into savings and investments, continue paying the house payment, and let the kids pay for their own college.
  • Pay off the Mortgage- Put all your extra money toward the mortgage, thus paying it off years ahead of time.  Once the house is paid for, then fund investments and college.
  • Save for College- Save aggressively for your kid’s college education. Wouldn’t it be a wonderful gift for your kids to start life after college with no debt?
  • Do all three- Send some to investments, some to pay extra on the house, and put some away for college.  Once the house is paid off and the kids are through college, put everything into investments.

Once you're able to start saving and investing the money you once used to pay off debt, you can make compound interest work for you in a HUGE way and build your wealth to new heights you never dreamed possible!

Be Careful- Don’t Get Stupid!

By the way, once you get to this stage of the game, it’ extremely easy to lose your focus if you’re not careful.  Here are a few things that can creep up on you and put you right back where you started when you don’t pay close attention.  Avoid these at all costs!

  • You Stop Doing a Written Budget–  You finally got control of your money when you started doing a budget every month.  If you get lazy and go back to flying by the seat of your pants, it won’t take long to lose control and start spending more than you make. Do a written budget every month, for the rest of your life!
  • You Start Using Credit Cards Again- It’s an easy habit to get back into.  You rationalize that you'll use credit cards “just for gas and groceries” because it's more convenient.  Don’t lie to yourself!   Eventually you’ll end up using them for other things. You will end up right back in credit card debt.  If you want to continue to be financially free, don’t do what everybody else does- NO CREDIT CARDS, PERIOD!
  • You Increase Your Lifestyle- You have all this extra money now that you’re out of debt.  Then you start spending more money on eating out, hobbies, travel, or other items.  There’s nothing wrong with enjoying your money, but be aware that lifestyle creep is extremely sneaky.  Keep your focus on your money goals.

Keep practicing the good habits that got you out of debt in the first place, and you will continue winning with money forever!

So remember- DON’T GET STUPID!

Types of Resistance You’ll Encounter When Getting Out of Debt

In this section, I’ll highlight some of the most common reasons why people fail at getting out of debt.  Unfortunately, far too many people quit the process as soon as they encounter a little resistance or make a mistake.

But here’s the deal- whenever you try to make a major life change, there will always be obstacles to overcome– you should expect them.  There will always be beliefs, habits, people, and even physical processes that will work to derail you at every turn.  The more you know about these potential obstacles, the more you’ll be able to avoid them.  So, let’s talk about some of the most common obstacles to getting out of debt I see on a regular basis.

To Get Out of Debt, You Have to Overcome Resistance

As I see it, there are 3 types of resistance people generally encounter during the process of getting out of debt.  All three types of resistance might not affect you, but they are common enough that you'll probably encounter at least one of them, if not all three.

  • There may be people in your life that are resistant (intentionally or not) to you getting out of debt.  They might say things like “No credit cards? You’re crazy!” or “You can't get out of debt, that's too hard.”, or “ I tried that, it doesn’t work”, or any other excuses for why you can’t do it. Don’t let other people get in your head and make you second guess what you’re doing.  Broke people want to keep you at their level, because what you’re doing makes them uncomfortable.

It could even be your friend who calls you up for dinner at a nice restaurant or a day of mindless shopping.  When you tell them it's just not in the budget right now, they try to convince you to do it anyway, saying “Just this once” or “Don't you want to have any fun?”.

These people mean well in their own strange way, but if you let them have influence on your finances, you will fail at getting out of debt before you get started!

How to Overcome Resistance from People

You must let these people know, in no uncertain terms, that getting out of debt is your top priority, and you'd really like them to be on board with your goal.  If they refuse to stop the negative talk and/or peer pressure, you may have to limit your contact with them for a little while or keep your conversations light, avoiding talk about money and getting out of debt at all costs.

  • Your brain naturally resists forming new habits.  Old habits tend to be well established, so your brain wants to continue doing the same old thing it's always done.  It’s a protective mechanism that convinces you that new thing you're trying to do is too difficult, it won't work, it's not worth it, etc.

How to Overcome Physical Resistance:  Tell yourself a different story.  Actively tell yourself that getting out of debt is the best thing you can do to change your financial life for the better.  Use consistent positive talk and do battle mentally every day.  Tell yourself you can do it, it is worth it, and that you WILL succeed, come Hell or high water (Read more about why brain resistance happens and what to do about it here).

  • Just like physical brain resistance, your spirit may try to convince you that getting out of debt is too hard, you'll never make it, or you're not worthy of living a debt free life.  Much like the physical battle in your brain, the spiritual battle can be just as difficult.

How to Overcome Spiritual Resistance

Stay close to God through prayer.  He wants you to live a life free from financial struggle, and the closer you stay to Him and follow His ways, the easier it is to overcome any obstacle in your way. 

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Any time you attempt to make your life better, change habits, or overcome adversity, there will always be resistance.  Whether it’s internal or external, you must recognize that resistance WILL come and that there is always a way to overcome it with God’s help.

When I think about overcoming obstacles, I like to think about the Biblical story of Jacob and his struggle at the stream of Jabbok (Genesis  32: 22-29).

Jacob was leaving a difficult situation for the land that God promised him.  But before he could cross over, he met with resistance, wrestling with a man throughout the night, and never giving up.  After he overcame, he was allowed to cross over.  God changed his name forever to Israel, and he became great.

You have the same power within you!

How to Accelerate the Process of Getting Out of Debt

One cool thing about the process of getting out of debt is that you get out of it what you put into it.  If you want to follow the plan I laid out above, on average you will be out of debt within a couple of years, depending on how much debt you have.

However, if you really want to accelerate your get out of debt plan, you can speed it up by months or years by doing a few simple things!  Here are a few of my favorite tips to make the process go much faster.

Sell Your Stuff

Most everybody has too much stuff that they don’t use and don’t need.  Clean out your closets, your attic, and every place else you keep things that aren’t being used.

Additionally, you can sell old boats, cars, tools, and exercise equipment you don’t use.  Sell everything you can find on Ebay or have a yard sale.  Then use that money only to pay off debt and nothing else.

Sell the Things That You Owe Money on

You may not like this idea very much.  But if you sell that car, boat, motorcycle, or whatever else you owe money on, it will reduce your debt load tremendously.

For example:  Let’s say you bought a brand-new car a couple of years ago and financed it.  You still owe $20,000 on the car.  Unfortunately, at this point the car is worth $16,000.  That stinks!

So here’s what you do:

  • Sell your car at the market value of $16,000.
  • Take that money and pay cash for a $3,000 used car.
  • Use the remaining $13,000 to pay down your car note.
  • BOOM! You just reduced your debt load by $13,000!
  • Once you get the car note paid off, start putting your car payment in the bank to save up for the next car.

Here are a few of my best articles to help:

How to Sell a Car When You’re Upside Down on the Loan

4 Steps to Getting Rid of Car Payments Forever and Pay Cash For Your Next Car

How Not to Finance a Car

Make Extra Money with a Side Gig

There are tons of ways to make extra money you can use to massively accelerate paying off a pile of debt.  The best way to find a side gig is to find something you are skilled at, is enjoyable, and hopefully doesn’t take a ton of your time if you already have a job.

You don’t have to do your side gig forever, just until you pay off all your debt.  But hey, if you enjoy it enough you might want to keep doing it.  You could put the extra money into investments, college funds, or even start a full-business from it and leave the 9 to 5 grind behind!  Here are some of my best articles to help you find a side gig you’ll love:

The CFF Money Making Ideas Page- links to all my top side gig posts

How to Find the Time to Make More Money- Gain 10+ Hours a Week for Your Side Gig

25 Quick and Easy Ways to Make Money to Pay Off Credit Card Debt

Work More at Your Regular Job

If you can get extra hours at your usual job, that’s probably the most convenient way to make extra money to pay off debt.  Of course, this is especially good if you get overtime pay.  Just make sure to use that extra money to pay off debt and nothing else.  Don’t be tempted to spend that extra money in other places!  Later you can use that money to save for the future and invest.

Read How to Make More Money Without Starting a Side Gig- 14 Ways to Be Awesome at Work

After You Get Out of Debt

Now that we’re at the end of this crazy long post, I want to thank you for sticking around and reading the entire thing!  If you are willing to put what you learned here into action, I guarantee your financial life will see massive positive change!

Getting out of debt isn't always easy, but it's well worth the journey!  How to make a detailed, customized plan to get out of debt for good!

Getting Out of Debt Isn’t Always Easy, But It’s Worth It!

When Angie and I started our debt free journey years ago, it was not easy to change our habits and start turning our finances around.  But we used all the financial tips and techniques you just learned above, we stuck with it, and since then we’ve:

  • Paid cash for 3 cars.
  • Paid cash for 3 college degrees (1 more pending).
  • Put thousands into our retirement accounts.
  • Paid off all credit card debt and haven’t used credit cards on over a dozen years!
  • Eliminated money fights. We haven’t fought about money in over a dozen years!
  • Paid cash for a rental house that generates income every single month!

More importantly, becoming debt free has allowed us to share our testimony with others.  Through this blog, our church, and other platforms, we’ve been able to play a part in helping others live a higher quality, financially free, more generous life.

People often ask us, “what is it like to be debt free?”.  I have to tell you, it feels pretty dang good!  Although we have debt freedom, we are not yet financially independent, but we’ll definitely get there!

Debt Freedom is Only the Beginning

One thing I want to tell you though, is that getting completely out of debt is not the end of the game, it’s only the beginning.  Once you have complete debt freedom, you have the ability to affect the world in a much larger way than you ever did before.

Remember the story about Tomas in Step 6 to Get Out of Debt?  You now have the ability to have an impact on the world that was not available to you when you were deep in debt.  You will be a world changer!

3 Small Things = Big Impact

So, my charge to you as you become debt free, is to do a few small things that will have a huge impact:

  • Replicate yourself- teach others how to get out of debt and succeed financially.
  • Be massively generous- give to causes that lift people up and make the world a better place. Increase the Kingdom of God!
  • Teach your kids- show your kids what you learned. Lead them as they grow older, so they can start their adult lives without debt.

I hope you enjoyed the post- be blessed as you Celebrate Financial Freedom!

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