Over the past year, I’ve talked a lot about how to eliminate debt. You’ve joined me as I found creative ways to reduce expenses and increase my cash flow. Today I want to share with you some reasons why getting your consumer debts paid off is such an important and life-altering decision.
- No more living pay check to pay check. Living pay check to pay check is a way of life (i.e, wage slavery) where not receiving your next paycheck would result in financial hardship. It sucks. With no consumer debt payments, your positive cashflow is higher. This enables you to save up several months living expenses and break out of the pay check to pay check slavery.
- Simplified budget. As most of you know, I’m a fan of simplicity. The less time I have to spend paying bills twice a month the better. Without consumer debt payments, the number of creditors you need to pay seriously decreases. Prepare to have more money and time as a result of your debt elimination efforts. Double win!
- Time to pursue personal interests. When you spend all of your time and energy trying to make ends meet, there isn’t much left over for enjoying life. Without consumer debt payments to worry about, there is time to do the things you WANT to do rather than only the things you HAVE to do. Think reading, spending time with family and friends, long walks, traveling and creative pursuits.
- Sound sleep. You’ve heard it before, but eliminating the stress of consumer debt truly creates lowered anxiety levels and sounder sleep. No more sleepless nights wondering how your going to come up with the money to make a payment on that $3,000 riding lawn mower, wave runner, laptop or other no longer used, wanted or even owned possession.
- Perspective. Probably the most important benefit of consumer debt freedom is perspective. Breaking free from the mindless consumption and trap of advertising will likely be the most liberating experience of your life. Early in 2012, I’ll be sharing my ebook with you. If you’re ready to open your eyes to the truth behind marketing, advertising and consumption, you’ll want to read this illuminating guide.
What would you like to hear more about in regards to getting your consumer debts eliminated? What has been the most useful tool in helping you to reduce your consumer debts and break out of the work-spend-accumulate cycle?
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The thing that’s helped me most in the past is very simple – a spreadsheet.
All it had was a list of the payments due every month (listed by approximate date), and a list of rough balances at the bottom.
I didn’t update the balances every month, but every few months is more than enough to see progress.
Also nice to see when bills are due, so I could plan a bit and not forget things.
Great tip Robert! I use spreadsheets to track my progress as well. It really helps me to visualize what I need to do in order to reach my goals and illustrates my progress at the same time. I do update my sheets every month, but for the most part I have formulas that calculate my progress.
I also love Mint.com for tracking my progress and goals.
I just wanted to let you know that while I read your blog regularly, the decision for our little family of 3 to eliminate consumer debt came before I found you. But I was encouraged and delighted to find your tips, your thoughts, and your successes. It made me feel the bootstraps weren’t as tight as I thought they were and that others were walking the path in the same ones (if I may continue the cobbler analogy). We also use a spreadsheet (Numbers for the iPad) and keep meticulous account of our expenditures using iBank.
If I could share a tip…..
Our paycheck (wife is SAHM) is direct deposited. We have our very small car payment automatically deducted. That gives us our bi-weekly starting budget number. We then subtract our tithes, gifts, and offerings. From there we pay our “consumer debt” which right now (and for 3 more months) includes American Express and a lingering loan with BofA (for 10 more months). The number leftover is our ACTUAL budget (as our AMEX and BofA payment is the same every paycheck to maximize our paying them off). From our ACTUAL budget we remove the cash from the ATM. That cash then goes into 4 envelopes: Gas, Groceries, Baby, and Misc. Once those envelopes are empty, we know we have no monetary resources left that pay period. Seeing cash disappear has helped curb our spending considerably!
Thank you so much for sharing your tips Drew!
I’ve heard from lots of people that have great success with the envelope method.
We use a similar method, but instead of envelopes, we keep the money we’re able to spend on groceries, gas and entertainment in a separate checking account. This way we know how much money we have for those variable expenses after all of our savings and fixed expenses are set aside. We intentionally keep a very low balance in the “spending” account. If it runs low, we put a halt on our spending (e.g., beans and rice for dinner!).
Beans ‘n rice. HAHAHAHA. Yes, we have, er, um, enjoyed what I call “Variations on Black Beans and Rice.”
Ha, ha! Yes. Sometimes I try to trick my family by making black beans and quinoa instead, but they’re on to me.
You know what else I think is important (and I know I have read it somewhere on your site before)? It isn’t JUST about eliminating consumer debt. It is about adopting a new mindset and avoiding consumer debt altogether. So many people think having a 0 balance on a credit line is permission, if you will, to start spending all over again. I used to be of that mindset I am sorry to report. But besides paying off our debt we have adopted a new view of money and resources, in general!
This is such an excellent point Drew! I’ve been of the mindset where seeking a zero balance was for the sole purpose of spending more as well. And your right, all that accomplishes is the eventual accumulation of more debt and no real changes.
Changing our relationship with money made all of the difference. Money is now simply a tool we use to help us (and others) live a less stressful and more meaningful life. We can’t use money to buy happiness. It took a lot of money spent to come to this realization.
We spent years stuck in the cycle of living to upgrade and it never brought us happiness or contentment. It wasn’t until we stepped off the hedonic treadmill that were able to really discover how little (money) we need to be comfortable and happy.
Hi Jenny! I actually do two separate things to get us through this whole situation. I too use a spreadsheet, but it is debt-only and starts back in January of last year when we started our consumer debt agency program. On the first of the month I enter each credit card balance, which is then totaled for the month, and I also track progress on car balance and house balance and keep a running total of “total debt” (even though paying off the house is a little while longer in the future…).
I also use a text file where I keep track of the next several paychecks of mine and my wife’s and how each of those is (theoretically) going to be spent. She thinks I’m overdoing it a bit, which maybe I am, but we have far fewer surprises these days. So, for example, I already have planned for my wife’s check way off on January 18th that part of it goes to pay the water bill, Netflix is due close to then, a chunk to savings, budgeted amount for groceries, same for gas, and then how much each of us will get for cash for our “allowance.”
Knowing what is coming up, and what we’ve got makes it quite easy to answer the question of “where are we?”
Hi Mike! It sounds like you’re doing a great job planning ahead. When you’re tracking your expenses and paying off debts, I don’t think it’s possible to over do it.
The more I looked at our finances while we were eliminating our consumer debts (just about every day) the easier it was to stay the course. I knew where every dollar was and where it was going!
I still look at our accounts everyday, and I tweak our budget a few times each month if things come up (they always do!).
Jenny, I think you hit all the main reasons to get out of debt! I think the biggest help to people to get and stay out of debt is to actually have a plan. I have interviewed and worked with so many people who tell me that when they actually thought long term about their money instead of getting to the next paycheck that is when they took off financially. I know personally whey my wife and I have a financial goal that we want to accomplish that is when maximizing our income to the fullest.
What a great point Jon. Having long-term financial goals making spending each paycheck in it’s entirety seem crazy.
I know a few people that live only for today and never think of tomorrow. That kind of mindset brings short-term gratification, but causes loads of stress over the long run. Because eventually…tomorrow does come. And it could bring a broken car, hospital bill, or other unexpected expense. At the very least, it will bring a desire to retire or slow down.
I think for us the biggest is trying to get our of living paycheck to paycheck.Granted, we have savings in case of a layoff, and we’ve never had consumer debt (only our mortgage), but things are always tight. we just hope we can keep our expenses low, so that should/when that income increases, we can actually live a bit more and be a slave to money much less!
Hi Megyn – keeping your living expenses low and staying out of consumer debt will make your life SO much more financially stable. I wish my husband and I would have thought that way when we were starting out.
If you can stick with it, you’ll be in such a great position down the road. It will all be worth it!
Fabulous points, Jenny, and I can’t wait ’til I get to that point. I agree with both Jon and Robert. I whittle away most debt when I make a realistic long-term plan and keep track of it with a spreadsheet. Unfortunately, it gets derailed with emergency expenses from time to time, but those 2 things certainly give me the control I need and a good dose of hope that it’ll all be gone for good sooner than later!
As to what I’d like to hear more about in regards to eliminating consumer debt, I do love reading tips that have worked.
You’re right, spreadsheets really are the easiest way to track finances Nenette. It’s easy to create different scenarios by copying existing budget sheets too (e.g., IF I can put an extra $200 each month toward the car loan, it will be paid off four months earlier…). I have a few too many different scenarios myself.
An emergency fund has really helped us with unexpected expenses. We’ve also been keeping a little padding in our checking account for smaller unexpected expenses.
Thanks for letting me know what you would like to hear more about! Tips that have worked. Got it!
These are the tips that I have been looking for. They are really helpful and applies to each and every one of us. Most of us are pestered by debt problems, it’s time that we take action on this.
Budget, control and monitoring. These have helped me a lot in reducing my expenses. First, I get to see if the items are listed on the “to buy” then look at the set amount. No excuses, if the cost is way beyond the allotted price, then, no purchase. Monitoring of the monthly expenses is, like everybody does, done with a spreadsheet (which I share with my partner) so he can also do his recording. It’s very easy to keep sight of the flow, and see the summaries of each account. I mean to keep on improving on this so we can generally stay on track of our 2012 goals.
Amy – It sounds like you have a great system in place for tracking your household spending. I couldn’t track ours without the help of my spreadsheet that I review almost daily. It helps keep me focused and motivated!
New to your blog but will be coming back often!
When I started my spreadsheet to track CC debt payoff, I also tracked each month’s actual payment & kept a running tally of total actually paid to date. Once I saw in front of me every month that increasing total of how much of my money had gone toward old debt, it really motivated me to work harder. Happy to say as of today my 2 CCs are fully paid off. The total paid out to accomplish this is firmly embedded in my head, so I expect that will continue as a motivation not to use the cards for more than I can pay each month in the future.
Hi Ellen! It’s great to have you here!
What a great idea to track the total amount you paid while paying down your credit cards.