Introduction

Congratulations on taking the first small step toward being debt free by getting this e-book.

It is my belief that most people don’t have the time or desire to wade through 100-200 pages of reading to learn what they want to know. I think many, if not most, just want the essentials as clearly and concisely as possible without a lot of extraneous information. That's exactly what I've tried to do in this short e-book...give you all the essentials an none of the froth.

So, let's just start with this key question: “Is it really okay to try to become debt free quickly,, according to the Bible. I answer that with a firm "yes." Not only is it okay, I believe the Bible teaches that we should try to do that very thing...as long as we do it legally, & ethically. For some people it may even be possible to be debt free in 1-3 years, but for others it will likely take a little longer. Regardless of your situation, it is a biblically sound idea to work hard to become debt free as quickly as possible.

Having stated that at the outset, let's now get down to teaching the steps one has to follow sin order to actually become debt free. Ready?  Let’s Go!  

Step 1 - Determination to be Debt Free

This step is critical to your success and so I suggest you take it seriously.  You probably didn’t get into debt overnight… it likely took some time to build up whatever level of debt you now have. So, it is also likely to take some time, some hard decisions and a lot of self-discipline to be debt free. If you are a couple, it won’t likely work unless both partners are determined to take the necessary actions and to stick with it to the end. 

Nothing of great significance ever comes from halfhearted effort. Consider professional athletes and outstanding people in every field of life. They achieved their status through commitment and hard work. Are you ready to make the commitment and do the hard work to become debt free?  I suggest making a pact with yourself...or with your partner if you have a partner that you will learn the steps and follow them until you are, in fact, debt free. The goal is attainable if you commit to making it happen and stay committed to doing what it takes.

Step 2 - Live Within Your Means - Build and Follow A Real Monthly Budget

This may seem obvious but many people are in debt just because they never have learned or practiced this one basic principle.  If you are ever going to be debt free you must live within your means.  In other words  you must never spend more money than have. That can be hard to in a world where credit cards and other credit options are so easily accessed. 

The result is that many people don’t follow this rule and live by using credit cards to pay for things that they cannot pay for with their current income or savings. Let’s think in terms of how much it costs you to live for a month.  To live within your means, you must never spend more money in a month than you have income in that month.  That includes thinking not only about monthly payments on things like homes, cars, credit cards, etc. but also those expenses that occur less frequently like insurance or taxes or other quarterly, semi-annual or annual expenses. Of course it includes the basic necessities of life like food, clothes, hobbies, etc. It must also include savings. Living within one’s means demands that all those expenses must be incorporated into the monthly budget and then accrued so that the funds are available when the payment are due. The key is to create a REAL budget based on your actual income and actual expenses and then to live by that budget no matter what.

The discipline of making and living by a REAL budget is the first critical key to handling your money responsibly.  So, your first task is to create a budget that accounts for your actual income whether it is from one source or several sources and your actual expenses based on EVERYTHING YOU PAY FOR whether you buy it daily, weekly, monthly, quarterly, semi-annually or annually.  The process is pretty simple to complete and the income side is easier than the expense side.  We give you tools to help you at no cost (see pdf link below step 3).

Start by totaling all your income and determine the per month numbers for every bit of regular income. If you get paid weekly or every 2 weeks or whatever calculate what the net amount is per month and use that number. The same is true if you have regular income on a less than monthly basis...count up all the you get in a year from such sources and divide those numbers by 12 to find your monthly income equivalent. Once you have all regular income accounted for and calculated into a per month equivalent, you are ready to work on doing a similar exercise for your recurring expenses...whether daily, weekly, monthly, or some other regular time frame.

All regular income per year calculated into a per month equivalent and all regular expenses per year calculated into a per month equivalent. (including all known income and all known expenses, even those that occur quarterly, semi-annually or annually).

Once you have completed all those calculations you now know what you need to "live within your means." If your expenses per month equivalent is larger than your income per month equivalent, then you are not living within your means and you will have great difficulty becoming debt free. That first order of business after determining those 2 monthly equivalent numbers if to trim your budget if the expenses are larger than you income. That will require hard decisions and mutual commitment if you are a couple. Then you must stick to it.

The goal should be to have an excess amount of income equivalent per month in order to build savings and have funds for emergencies. In fact, that is the first essential task to completely understand and then to achieve that status and finally to maintain that healthy margin.

I cannot overemphasize the necessity of creating your "Real" monthly budget if you want ever to succeed in becoming debt free.

Step 3 - Manage Your Budget Carefully 

Once you have created your REAL budget based on the information we talked about in Step 2, you now must discipline yourself/yourselves to live within that budget.  In other words, you must not spend more in a given month than you have income to cover, making sure that you don’t “borrow” from funds you have set aside for less frequent bills.

Doing that will destroy your plan and keep you from achieving your goal of being debt free.  It you use credit to pay for these things, you clearly aren’t living within your means.  So, you either have to trim your expenses or grow your income in order to keep yourself from making that critical error.  

If you borrow from one of your other expense items in a given month then that money must be put back into the account later.   This may be hard to do at times and I admit that it is, but unless you institute and keep such a policy in handling your money, you will not really succeed in the critical area of living within your means. [There is link to a budget creation and management tool at the bottom of the page that you can use to help manage your money on a month to month basis]. It’s a sample to show you a real budget looks like so you can build and manage yours. The numbers will be different for everyone, of course, but the principles and the processes are the same.

Managing your monthly budget

Dave Ramsey and some other advisors suggest cashing all your checks and actually putting the cash into envelopes labeled for each item in your budget. They suggest that because it is easy to see when the cash is gone; and when it’s gone, you must not spend anything more for that item until the next month. While I certainly don’t criticize that approach because it may be necessary for many people who won’t have the discipline to control their spending any other way, it is possible to manage your expenses by creating the same items in an Excel document budget management tool.

You simply place the necessary income into each budget item from your various income sources each month and then subtract from those categories as you make payments that are part of that item.  In this way, you have “virtual envelopes” that enable you to do the same thing. The drawback from this method is that it requires even more discipline because it is easier to type in numbers on an Excel doc than it is to actually take cash out of an envelope. 

(CLICK ON BUTTON AT THE BOTTOM TO ACCESS THE BUDGET TOOLS I HAVE FOR YOU)

Step 4 - Build Up Your Savings Account 

Having a savings account to cover emergencies and other unexpected expenses is an absolute necessity to succeed at living within in one’s means.  As everyone knows, unexpected expenses like repairs and/or replacement of things that wear out are inevitable.  It is also a virtual certainty that certain other types of emergencies will arise that must be handled.

These things cost money and the only way to cover those expenses without destroying the management of your monthly budget is to build up adequate savings to be able to pay for them as they happen.  In fact, building savings must be one of the items in your monthly budget in order to ensure that funds are available when needed.  

How much should a person keep in savings is debatable, but I advise working toward having a minimum of $2,000 in savings and then building that fund up over time until eventually you have enough money to pay cover 3 months of expenses. It will probably take some time to achieve the first goal and then perhaps quite a bit longer to amass enough savings to cover at least 3 months worth of living expenses.

Do not begin to pay more than the minimum due each month on any of your debts until you have saved the initial $2,000. The reason for this advice (strongly emphasized advice) is that

if you don't have that amount available in savings you are likely to be continually overspending your monthly budget due to inadequate funds to cover these unexpected expenses. That in turn will greatly hamper your ability to ultimately move forward on paying off your debts.

So...again...build up your savings account to $2,000 before you begin adding to any of your debt repayment schedule above the minimum due each month.

You might need to start with just $50 per month and work up to $100 and then $200 or more in your monthly budget item that immediately goes into a separate savings account.  Obviously,saving $200 per month for 10 months the would achieve the minimum goal

Once you have reached that amount, you can start paying more on the debts and how we advise doing that is covered in the next section.

One final word on savings. Any time you must use your savings account money to cover expenses, then work on refilling the savings to your minimum of $2,000 before putting more money into debt repayment.

Early on I did not have a clear grasp of the importance of what I told you in this section on savings and it hindered my ability to make good progress on debt repayment.

So, for your own well-being and to have the best means of paying off your debts, be sure to do what is taught in this section on savings.

  Step 5 - Payoff Debts Using “Snowball” Strategy 

Now we come to the section where we actually begin to discuss paying off debts.  Up until this point we have focused on the essentials of how to live within your means, how to manage the money you have and how to avoid blowing up your budget due to not having savings. 

First we need a plan and a strategy for getting out of debt as quickly as possible.

1. List all your debts in order of how large they are from the smallest to the largest debt.  That would include personal loans, credit cards, car loans, boat loans, home mortgages and any other debt you may have. 

2. Then use the "snowball strategy" to pay off your debts.

The remainder of this section will explain the snowball strategy and how to use it.

Here’s the overview summary statement of how the snowball strategy works: you pay only the MINIMUM due on every debt EXCEPT the smallest debt each month until the smallest one is completely paid off. Then you continue paying only the minimum due on all your debts each month EXCEPT for the one that has now become your smallest debt after the first one has been paid off. But now you add the full amount you had been paying on the smaller one to the minimum you had been paying on this new smallest one and in so doing you have significantly increased the amount you pay each month on that debt until it is paid in full.

Then you continue that process of paying off the smallest and then adding the full amount to the payment on the next smallest while keeping all the others as their minimum due each month. If you do this diligently for as long as it takes, you will get all your debts paid off...and you will almost certainly do it faster that by trying to pay them off another way.

One of the big keys to making this work is to increase your monthly payment on the first smallest debt above the minimum due by some amount (obviously the more you can add initially the better)..

It may be that initially you can only add $25 or $50 extra per month. So find a way to do that and keep doing it until the smallest one is paid in full.  Again, the more that you are able to pay above the minimum for that loan the faster it will be eliminated.  

When that one is paid off, combine all the money you have been paying on it to the minimum you have been paying on the next smallest debt remaining and pay that one off while continuing to pay the minimum due on all the others.  Repeat this process working your way up the ladder from smallest to largest until they are all paid off.  

For most people home mortgages will be the biggest and therefore the last to be paid off. When you get each one paid off, have a celebration.  

Here’s an illustration of how this process works. Let's say someone had the following list of debts:

Credit card debt #1 - $2,000  with a min. due/mo. $25

If he paid $100 per month instead of $25 the debt would be paid off in about 24 months.

Credit card debt 2 - $5,000  with min. due/mo. $100

After the first loan is done, add the $100 he has been paying on that one to the $100 minimun he has been paying on this one. So the new payment he is making is now $200/mo. In that case the loan could be paid off in about 30 more months.

Car loan 1 - $18,000 - min. due/mo. $340; now pay $540/mo. (adding the $200 to the $340)

Car loan 2 - $24,000 - min. due/mo $387; now pay $927/mo. (adding the $540 to the $387)

Mortgage - $200,000 - 30 yr. at 5%; min.due/mo. $1075; now pay $2002/mo. ($927 + $1075)

When all are paid off have a BIG CELEBRATION!    

Is this easy to accomplish? No, which is why so many people never do. However, if you (singular or plural) are totally committed to being debt free as we stressed in Section #1, you will find that it can be accomplished. And it will happen in a much lesser time than if you never utilize a strategy like this.

STEP 6 gives you some ideas about how you could possibly shorten the time frame greatly.

Step 6 - How to Accelerate the Payoff Process 

Even though the snowball approach is an excellent method for paying off debts, the process can still take a number of years to complete, as you no doubt realize.

So, here’s the key to becoming debt free more quickly...find a way to earn more income.  

If you could add $1,000 per month or $3,000 per month or more to your debt repayment process you can pay off all your debts much more quickly.

For example, let’s say you were  able to earn an additional $1,000 each month after taxes and giving. What would happen if you added that extra $1,000 to your debt payoff plan? Let’s see how that would work in our example given in the last step.

You now pay $1100/mo. on CC#1 - paid off in 3 months.

Then you pay $1200/mo. CC #2 - paid off in 5-6 months.

So in less than 9 months you would have no credit card debt

Next pay $1,540/mo. on car loan #1 - paid off in about 10-12 months because, don't forget you have been continuing to pay the minimum for 9 months, thus lowering the remaining debt balance.

Now pay $1927/mo car loan #2 - paid off in less than 6 months additional because again you have been paying the minimum for about 21 months which lowered the remaining debt.

So, at this point the only remaining debt is the mortgage after less than 30 months. Wow!

Finally pay $3002/mo on the mortgage - paid off in about 6 more years.

So in about eight and one-half years, all those debts including the mortgage would be paid off.

That would require a lot of self-discipline to maintain the process but the question to ask is, "Would it be worth it?" Well...I guess that's what you must decide.

But, I'm pretty sure what you might say to me at this juncture is something like this..."I can't even imagine a scenario where I could have that kind of additional income to speed up paying off my debts." Or "I'm so busy now...how do you expect me to earn more money?"

Those are valid questions, and I won't pretend that it would be easy to accomplish, especially if you are already struggling just to make ends meet each month.

The truth is,  that not a lot of people are likely to earn that much additional income...BUT...it is

possible.

If you are someone who can imagine having a successful small business, maybe even online, the possibility exists. So, if you have any interest or curiosity about such a possibility, just go to the bottom of the page and click the green button at the bottom to see some “Ways to Earn Extra Income”

That will take you to a list of potential ways to earn additional income. No guarantees, of course, and certainly not everyone will want to consider this course of action. But for those who are open to the idea, this list may get your creative juices flowing.

The idea of earning more is not essential to getting debts paid off; using the "snowball strategy" will get it done as described above by just adding a relatively small amount to the smallest debt payment and then proceeding as we explained. But the point here is that in order to accelerate the pay-off process, more money must be added to the monthly payments.

In any case, the key to accelerating your debt payoff plan is to find a way to earn additional income and put that on top of what you are already paying per month using the snowball strategy.  That is the fastest way out of debt.  Obviously, the more extra money you can add to the payments the faster you can be debt free.

Of course that is true only if you continue to faithfully follow the "snowball strategy" and all the other steps outline above. 

Step 7 - Build Long Term Assets 

I am not a certified investment counselor or even an investment advisor, so I”ll simply say this: it is wise to prepare for retirement and to think about what one leaves as a legacy to their heirs and others. My advice on this matter is quite simple…find an investment advisor you trust and make a plan to build your assets over time. Retirement goals and time frames will vary greatly from person to person but failure to plan and execute the plan will almost certainly result in failure to accumulate the assets you hope to have in the future.  

Conclusion

Becoming debt free is not easy but it’s worth it.  Remember what I said in Step 1…nothing of great significance ever comes from halfhearted effort. All outstanding people achieved their status through commitment and hard work. So, now you know the way to get out of debt.

What happens next is up to you and I’m pulling for you to achieve your goal.