When I first got serious about getting out of debt, I used the traditional “shotgun method” and just threw as much as I could into every one of my debts. But I was quickly overwhelmed by how much debt I had in front of me, and I didn’t think I could ever get debt free. My problem was that I didn’t have a plan.
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The best way to accomplish your goals is to lay out a clear roadmap, break it up into manageable steps, and then focus on each step one-at-a-time. My three favorite methods for getting out of debt use a similar concept: focusing on one particular debt while paying minimum payments on the rest.
Debt has become commonplace today. It’s just a part of life. Deep down, we don’t want that baggage; we don’t like paying that bill every month; we would rather put that cash to better use. But we reluctantly accept that we need it. We need the things that debt can give us now and we’ll just have to deal with the pain. No pain, no gain, right?
But we know that debt is the opposite of wealth. Debt is a drain on cash flow. Every payment today for things we’ve already consumed is money that could be paving the road to financial freedom. If we want more cash to save, invest, and enjoy life, we need to get rid of the drain on our income. Here are 10 ways to get rid of negative income:
I love my car. It gives me the ability to do things I used to do by feet, bike, or bus much quicker, along with a lot of things I had to rent a car for. But let’s call it like it is: a car is a money hole. If we want to be wealthy some day, we’d better be get our car-buying mindset in shape. Let’s look at why you should pay cash for a car and five classes of cars you can afford depending on your situation.
There are two tried and true ways to stay poor: buying things you can’t afford, and taking on debt for consumer goods. Most people buy cars they can’t afford and pay for them on credit.
It may come as a surprise that we maintain a couple thousand dollars worth of rotating debt every month. We also bought our wedding rings last year on a line of credit. Before you throw me to the hypocrite-eating wolves, rest assured that we always have enough cash in the bank to pay off any debt, and we never pay a dime in interest. So I would like to lay out some thoughts on the question: Can debt be good?
There are two types of debt: productive debt, and consumer debt. Productive debt is from borrowing for goods, equipment, or services that will create new wealth to pay for the debt (and hopefully generate some excess return). This is the essence of capitalism. Without capital saved and employed for future gains, mankind could not progress.