Home > Mom's Life > Family Finances > Understanding Finances > How to Get Out of Debt
|

How to Get Out of Debt

Here's a newsflash: The first step to getting out of debt is to stop adding to it. You do that by saying "no" to a series of payments with interest and, instead, paying in full.

The TV show Saturday Night Live a few years ago aired a skit with comedian Steve Martin, who was guest-hosting. It was a spoof on an infomercial promoting a revolutionary get-out-of debt plan. The "unique program" was titled, "Don't buy stuff you cannot afford."

The skit opened with a discouraged couple sitting at their kitchen table wondering how they'll ever get out of debt. Enter the author of a one-page book, Don't Buy Stuff You Cannot Afford.

    Woman reads aloud from the book: "If you do not have any money, you should not buy anything."
    Woman to husband: "There's a whole section here on buying expensive things using money you save."
    Couple looks thoroughly confused.
    Woman: "What if I want something but I don't have any money?"
    Author: "You don't buy it!"
    Man: "Let's say I don't have enough money to buy something. Should I buy it anyway?"
    Author: "No!"
    Woman: "What if you have the money, can you buy something?"
    Author: "Yes!"

This skit goes on, but you get the idea. The spoof infomercial says if you order now you can receive the additional book, Seriously, If You Don't Have the Money, Don't Buy it, along with a 12-month subscription to Stop Buying Stuff magazine.

The point is to stop the buying and borrowing behavior that got you into debt in the first place.

How to Get Out of Debt, 1-2-3

  1. Quit borrowing money.
  2. Quit saving money.
  3. Pay small debts first.

Quit Borrowing Money

If your debt is growing, there are only two explanations. You're spending too much money, which this book should be able to help with. Or, you have an income problem. You're charging necessities on the card because you don't make enough money to cover bare living expenses. Figuring out the reason for running up credit card debt is the first step toward making sure it doesn't happen again.

The culprit of debt is often credit cards. If you can't trust yourself with credit cards, stop using them -- cut them up, freeze them in a block of ice in your freezer, whatever. Just don't close accounts because that will hurt your credit score.

Well-meaning people will advise you to transfer balances to lower-rate cards or continually surf the balance from low introductory rate to low introductory rate. Card surfing is not inherently bad, but it's not nearly as effective as actually paying down the card balances. Surfing merely shuffles debt around. And you might even add to debt by incurring transfer fees.

For people in deep debt, it's like the old metaphor of rearranging deck chairs on the Titanic. It doesn't address that sinking feeling.

So, unless you have a credit card at more than 20 percent interest and can get a substantially lower rate, focus your energy on paying more and surfing less.

This is one case where "throwing money at the problem" actually works.



More on: Family Finances

|

From The 1-2-3 Money Plan Copyright © 2009, FT Press. Used by permission of FT Press, and Pearson Education. All rights reserved.

To order this book go to Amazon.


stay connected

Sign up for our free email newsletters and receive the latest advice and information on all things parenting.

Enter your email address to sign up or manage your account.

Facebook icon Twitter icon Follow Us on Pinterest

editor’s picks

get ready for school!

We’ve got your
shopping list,
lunch menu,
and more.

GO

highlights

Printable Fall Fun To-Do List
Celebrate the cooler weather with this printable checklist of fun fall activities for your whole family.

Kindergarten Readiness App Wins Gold
Our Kindergarten Readiness app won the Gold Award of Excellence in the educational category at the 2014 Communicator Awards. This valuable checklist comes with games and activities to help your child practice the essential skills she needs for kindergarten. Download the Kindergarten Readiness app today!

Top 10 Care Package Items for College Students
Show your college student that you love and miss her by mailing a care package full of dorm room essentials and comforting treats. Whether it's her birthday, exam time, or just because, get care package ideas to brighten her day.

Find Today's Newest & Best Children's Books!
Looking for newly released books for your child? Try our new Book Finder tool to search for new books by age, type, and theme, and create reading lists for kids!