The following is a guest post by Craig Ford from MoneyHelpforChristians.com who writes about personal finance as a set of tools to manage life, not money. He is also a missionary in Papua New Guinea.
In your lifetime you will need discipline. Discipline primarily comes from one of two sources – internal or external.
Internal discipline shows that you are self-aware enough to recognize dangerous limits and unhealthy habits. Once you’ve recognized those inadequacies, you discipline yourself and exemplify control over your life.
External discipline means that you have shown an inability to recognize or control your limits and unhealthy habits. Since you cannot control them, someone else (police, government worker, or family member) will be forced to intercede.
Those with internal discipline have the potential to better manage their finances.
What I’m going to suggest to you today I cannot enforce, but I promise that if you enforce them on yourself you will see an improvement in your debt situation.
So, don't cheat yourself. Don't cross your fingers behind your back. What you're about to swear on will lead you to financial freedom.
Now, raise your right hand and repeat after me …
6 Promises That Lead to Debt Free Living
I will not take on any new debt.
You’ve got to stop digging if you ever hope to get out of a deep hole. You cannot take on any new debt.
Commit that you will not take on any new debt, and when a crisis arises, solve the problem without using credit as an option. Creativity is usually unleashed when your options are reduced. Don’t cheat and take on new debt, but work really hard to solve your financial issues without credit.
If you are trying to get out of credit card debt then you may find that you’ll need to do something drastic like cutting up your credit cards. Just be willing to do whatever it takes.
I will get organized and take an inventory of my debt.
You cannot fight an enemy that is unknown. You need to know (even if it is scary) exactly what you are up against. You’ll need to develop a plan, and you can’t develop a plan until you can properly diagnose the seriousness of your situation. But if you are organized and committed, you could get out of debt by the end of 2011.
Any time someone goes to the hospital, that person is immediately evaluated in terms of the seriousness of their injury. If you have a runny nose, you’ll probably wait longer in the waiting room than someone who just cut off a hand.
Get online. Open your filing cabinet. Make a few calls. Your end goal is to make a list of how much money you owe to creditors and at what interest rate.
I will get on a written budget... and will stick to it!
Hopefully getting organized and taking an inventory of your debt will put you into enough of a state of shock to motivate you to do whatever is necessary. Good. That means you’re prepared to learn how to budget, but more importantly, how to stick to it.
Budgets only have one rule – what you spend cannot be more than what you earn. If you are in debt, you need to try and push that rule a little further and say – what you spend must be less than what you earn. This way you’ll have some available cash for debt repayment.
I will establish a debt reduction plan, and I will stick with it (unless it is a bad plan and needs to be revised).
At this point, you’ve already figured out two sides of a very important equation – how much debt you have and how much income you have available to attack the debt. It may also help to shop around for a loan that would allow you to consolidate your debt into 1 monthly payment.
Now you need a formal debt reduction game plan.
- You could start by paying off the debt with the lowest balance (usually called the debt snowball). Here’s a sample debt snowball spreadsheet.
- You could pay off the debt with the highest interest.
- You could pay off the debt you hate the most.
Whatever plan you use, this is the time to develop and commit to a plan.
I will sacrifice and start using the word ‘no’.
You cannot say ‘yes’ to everything and still get out of debt.
Sometimes you’ll need to say no to yourself. Sometimes you’ll need to say no to your children. Sometimes you’ll need to say no to your friends. Until you learn to sacrifice, your pile of debt is likely to continue to grow.
I will do geeky things like crunch numbers.
Typically, those with debts tend to be more unorganized. However, you’ll need to get set up with a good personal finance software so you can track your spending and debt repayments.
At this point, you can look into the value of credit card debt consolidation. You might even consider calling to ask your credit card company to reduce your interest rates.
Too often people think they will solve their debt problem by focusing on credit tricks and interest rate reductions. These make no difference until you’ve first set up the first five rules mentioned above. However, after you have make some firm commitments to yourself, you might as well get the math on your side to help you pay off debt faster.
Remember, there is no one who will be able to force you to say or keep these rules. However, if you commit to following and implementing these ideas, you’ll officially be walking in the direction of debt free living.
Image courtesy of Carmela Fernando.