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What not to do in getting out of debt

Getting out of debt was the single most important thing I've ever done in my financial life. About eight years ago, I had more than $45,000 in consumer debt. The interest alone was costing me more than $500 a month. My monthly payments were almost $2,000.

I used Dave Ramsey's snowball method in his Total Money Makeover. It took me about 18 months, but I became debt free. After that I was able to easily save 20 to 25 percent of my income for retirement.

Here are some commons errors a lot of people make:

Not following a debt snowball method

This simple method means paying your lowest balance first, while making minimum payments on all other debt. Once the first is paid off, add that payment to your next lowest balance. And so on. I used this method and it worked beautifully. Some say to pay off the debt with the highest interest first, which is OK if you have the patience.

Using your credit card(s)

Do not ever use your credit card while in the process of paying off all your debt. If you follow Dave Ramsey, you'll never use a credit card again. This is fine, and I use them now, but I pay off charges as soon as they happen. I never carry a balance more than a week. I get about $300 a year in points and pay no interest.

Not including necessary categories in your budget

You've got to have that emergency fund first. Don't ever think you can use a credit card for unexpected expenses. Make sure you budget for things like car repairs and stuff that you can't plan for.

Paying only extra on your car loan

Your car loan is a consumer loan and should be treated like your credit cards during your snowball process. When I paid off my car, which was my last debt to pay off, I put the payment into a savings account. When it was time to replace my car, I paid cash.

Not cutting expenses

You can cut expenses. If you have a good budget, you can find where you can cut. You'd be surprised where you can cut. Just Google for ideas.

Not having a solid plan

Write down how you're going to do it. Update it when necessary. Any type of planning and/or goal setting must be written.

Not working together with your partner

If you have a spouse or partner, be on the same page. This is not as easy as it sounds, but you've got to have common goals on this. If you're trying to get out of debt and your partner is running around charging purchases, it won't work. And having debt is a big stressor on a relationship. Here's a resource to get you started (note that one of the steps is a monthly budget: you can't escape it, so just do it): 5 Steps to Getting on the Same Financial Page as your Spouse.

Not being consistent with budgeting

This is a must. You must develop the discipline to budget the rest of your life. I still do it, even though I could probably get away with not doing it, but I find it essential. I also do monthly net worth statements to see if I'm on track with my short and long-term goals.

Not being clear of why you want to be out of debt

While this seems obvious, you should have clarity on this. What are your goals? What do you want to achieve?

Not getting mad enough at your debt
Being disgusted with your financial situation is a great motivator. Get mad and get debt free.

And last but not least, improve your knowledge about finances and investing


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