How to Get Out of Debt: This Really Works!

Do you ever feel frustrated because you want to get out of debt but your income barely covers your necessary living expenses? Or even worse, you’re just trying to survive but you keep sinking further into debt? I mean, forget about trying to acquire a reserve of cash; it’s near impossible to even stay “in the black” each month. Just when you seem to be getting on top of things the car breaks down, or the fridge stops working, or . . . I think you get what I mean.

I have experienced these things myself, so I thought I’d do a little research to find a solution.

What I found was a simple step by step process that really works! And it works FAST! Some of these steps may not be easy for some, as they require discipline, but they are simple and straightforward.

The steps are:

• Avoid Further Debt
• Pay Tithing
• Pay Yourself
• Have Interest Work For You – Not Against You
• Strategically Pay Off Your Debts

Let’s go over each of these 5 steps:

Avoid Further Debt

Put simply, you can’t get out of debt if you keep accruing more of it.

Now, obviously, if you have necessary expenses that come up, for instance, your car breaks down, or you have medical expenses, you need to take care of that. But what I’m talking about is avoiding unnecessary, emotional spending, or impulse buying.

One way to do this, for instance, is if you are at the store, or maybe you’re watching an infomercial on TV and you find yourself wanting to buy something that you didn’t already want before going to the store, or before you started watching TV – DON’T BUY IT!  Give yourself some time before making a final decision on whether to buy the item. Wait at least a day, maybe longer, and you probably won’t feel a “need” to buy it anymore.

Pay Tithing

I know what some of you are thinking, but hear me out. Paying tithing (which by the way is 10% of your increase) falls under the category of The Law of The Harvest. The Law of the Harvest says that You only reap what you first sow. For greater insight into the Law of the Harvest watch this video by Dr. Steve Weston:

By generously providing for others, and giving to those in need, you are literally laying up treasures in heaven, and I might add treasures on earth too. Whether or not you are a religious person, or belong to a church, or not, this is a true principle. The Law of The Harvest states that what you sow, you reap; and as Dr. Weston said, it applies to every area of life, be it exercise, finance, health or relationships. You can’t fake it, or take shortcuts. It’s a law as sure as gravity.

Another way you could apply this principle is to skip a meal or two and donate the money, or food that you would have eaten to your church, or the homeless shelter. There are many ways you can apply this principle, and by helping others it comes back to you multiplied.

An awesome thing about the Law of the Harvest is that you reap more than what you sow. An example of this is when you plant a kernel of corn you get a corn stalk in return, with many ears of corn on it and each ear of corn will have hundreds of kernels on it. This principle applies to everything, even finances.

For those of you who are religious, the Bible states that if you pay tithing you will receive blessings in return, even more than you have room to receive them. (see Isaiah 58:6-12; Malachi 3:10). I also love what Proverbs says: “Honor the Lord with thy substance, and with the firstfruits of all thine increase: so shall thy barns be filled with plenty, and thy presses shall burst out with new wine” (Proverbs 3:9–10).

On a personal note, my wife and I struggled for years with having more month than money. When we started to pay tithing things just seemed to work out. On paper, we didn’t have enough money, but the bills always got paid. Many times we didn’t know how it worked out because the math didn’t match, but it worked out. Over the years we’ve had incidents where someone paid a bill for us anonymously, or money showed up in our mailbox. We’ve had kitchen appliances given to us anonymously, and house repairs, etc. I’m not saying that it will happen the same way for everyone, but for me, I will never stop paying tithing. I know it is a true principle.

Pay Yourself

In the book The Richest Man in Babylon, by George Samuel Clason, we are taught “A part of all you earn is yours to keep.” In the book, a man named Arkad says, “Thou do not all earn the same. Some earn much more than others. Some have much larger families to support. Yet, all purses are equally lean. Now I will tell them an unusual truth about men and the sons of men. It is this: That what each of us calls our necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”

Arkad tells the men not to confuse necessary expenses with their desires, that all men are burdened with more desires than they can gratify. “Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings.”

I found this to be true. Whenever I received a raise at work I never seemed to have any extra money. I would always spend what I earned. If we will instead discipline ourselves and budget our expenses and pay a portion of our earnings to ourselves, we will have money to pay for our necessities and our recreation. We then can take the portion we paid ourselves and put it to work for us, which leads us to the next step.

Have Interest Work For You – Not Against You

This step is simply to invest the portion of money that you paid yourself and earn interest on it. If you don’t know where to invest your money, put it in a savings account. At least it will be earning interest for you. Whether you invest 5%, or 10% of your earnings, or even if the amount you invest is small that’s okay, because you’ll have your money earning interest for you. This is like getting a raise, and remember, interest never sleeps.  Keep re-investing your profits again and again. Over time this really adds up.

Debt is a form of bondage. If you have debt you are never truly free, because interest on debt never sleeps. You will always feel the burden. It is like a drain sapping your energy and peace. Why not have interest work for you instead of against you? Can you imagine how awesome you will feel when you are earning interest on your money instead of paying interest on a debt?

Strategically Pay-off Your Debts

This next step is based somewhat on a method called the Snowball Method by Dave Ramsey. He explains it in his book The Total Money Makeover. It’s called the snowball method because it’s like a snowball at the top of a hill. As you roll the snowball down the hill it picks up more snow and the snowball gets bigger and bigger. By the time you reach the bottom of the hill, the snowball is huge.

Just like a snowball, you can do the same thing with debt. Pay off the smallest bill first. Then apply that payment to the next smallest bill. If you keep adding the payment from each paid-off bill to the next largest one, you will become debt-free much sooner. This is because when you pay the “extra” towards a debt each month it goes to principle, not interest. This pays the debt down much faster, all without paying any extra than you started with.

In order to use this method, you will obviously need to know how much money you owe and what your payments are for each bill. Gather your bills and organize them in order of smallest payment to largest payment. Now take a look at your other expenses, such as your mortgage, utilities, groceries, and the like. Do you have any money left over after you add up the total from this list? If you do, put it towards your smallest bill. Keep putting your “extra” money towards your smallest bill each month.

Payment Schedule Example

In this simplified hypothetical payment schedule no interest is shown, however, it depicts how the Snowball Method works. As you can see, an extra $50 was added to the debt payments each month in this example.

The Snowball Method can dramatically reduce the amount of time required to pay off debts and it greatly reduces the interest paid – all without additional costs.

Many, perhaps most of us do not do this. We either spend what we were paying on the debt for “cost of living” expenses, or we go get another debt. If we instead discipline ourselves and add the money towards each remaining debt, we will get out of debt much sooner than one would believe possible.  (I found a fantastic overview of how the Snowball Method works in a post by The Organic Prepper.)

By saving a little money each month and gradually increasing it to a reasonable amount, we will be able to establish a reserve of cash.

People may experience financial difficulties due to unemployment, or unexpected emergencies, but if they are debt-free and have a financial reserve (even if it is small) they will feel greater peace and much less worry.