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Getting out of Debt Overview
- Don't Focus on The Numbers
- First Remove Emotional Stress
- Preconditions To Getting out of Debt
- Review Your Lifestyle
- You Are Ready For The Debt Free Lifestyle
- Look at the ABCs
- Examine Your GRIP on Finances
- Lifestyle Changes
- Action Plan
Getting out of Debt Overview
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Getting out of debt and staying debt free is not only possible but desirable. It’s not swift; but needs patience and significant attitude changes. To get out of debt, acknowledge your need for a debt free lifestyle and realize you bear effects of earlier decisions that caused your debt. But understand the most significant impact is emotional on you and your close relationships. Once the debt burden lifts, you will see your condition much clearer and not allow it to stymie you. Then, you are ready to start the debt elimination journey.
Note this caveat: In the US where illness can bankrupt someone because drug companies rule, these processes might not be enough in many instances, and folks might need special help to survive.
Don’t Focus On The Numbers
Several folks see the key phase of getting out of debt as looking at numbers — so-called financial engineering. They juggle figures without considering needed attitude changes by stressing loan consolidation, refinancing, re-mortgaging. This numbers emphasis provides temporary debt relief, but does not induce requisite behavior changes. That’s why, on this journey, we stress behavior changes early, and defer number crunching until we deal with the profound cost of debt — the emotional cost. You need a long-term fix, not a superficial shift in today’s numbers.
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First Remove Emotional Stress
Your first major step is to decide how to lift the debt burden — the stress. Do you need non-financial counseling before tackling the numbers? If you can’t sleep and worry engulfs you, you might not appreciate various debt-reducing options. You might need non-financial counseling or therapy. Think about this before rushing ahead to conquer the numbers.
Preconditions To Getting out of debt
Your mindset will be vital as you work to get debt free. You must develop the mantra that it took a long time to fall into debt and it will take much longer to get out. Practice trumps everything.
- Accept your condition. If you don’t, you won’t see challenges and opportunities.
- Do not be a victim; accept responsibility for your actions.
- Be willing to learn and to change.
- Focus on changing you instead of changing your condition or your spouse.
- Couples, try to see each others view and accept where you are as the basis for change... and your growth.
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You Are Ready For The Debt Free Lifestyle
Once the emotional (financial) stress passes, start solving the case of the vanashing dollars in which you become a detective. This process is akin to a mystery movie in which you learn about your spending habits and decision processes as you amassed debt. To solve this case, answer these questions:
- What did I buy?
- What procedure did I follow before buying?
- What were my primary debt attractors?
- Get a special notebook and label it, the Case of the Vanishing Dollars.
- Set a time—maximum one month—to learn how, not why, you got in debt.
- Mull over these two key questions:
- What was/is my view of affordable?
- Before spending, what decision procedure did I follow?
Review Your Lifestyle
Was my approach to spending FLAT? These next four questions will help clarify your initial conclusions and might point to profund changes needed:
- Was I Feeding my greed?
- Was I Listening to a voice yelling at me to spend?
- Was I Active gambling, trying to increase income by taking huge risks?
- Were we Talking to each other as we fell into debt?
At the end of this stage, write a one-sentence conclusion of what seems to be major causes of debt incurrance, and answer this question, yes, or no: Was my spending focused on raising my emotional wellbeing?
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Looking at the ABCs
This section gets to the heart of beliefs and practices. It's vital we understand our attitude leads to our behavior which produces consequences. Taking a deep diving into our ABCs, especially our attitude during the debt accumulation period is crucial:
- What was my Attitude toward money?
- Did I accept my stewardship responsibilities?
- Did I understand I am a manager and should have a proven decision process and not risk funds from the household budget?
- How did I Behave during the period?
- Did my Behavior suggest I understand implications of my stewardship of money?
- Did I use a budget or spending plan?
- Did I respond to advertising and easy credit terms?
- Did I spend on needs that could wait?
- Did I practice these essential words, wait, not now?
- How did I Choose to spend?
- What decision procedure did I follow before spending?
- What were main spending drivers?
- What caused me to spend each time?
- Did I spend for emotional relief?
- Did I spend impulsively?
Before moving to the next stop, write one sentence of your findings from the ABCs’ review. Do you see areas needing attention?
Examine Your GRIP on Finances as you Get Out of Debt
Did I have a GRIP on my finances? That’s the question to answer in this phase. This section has four broad steps and needs as much soul searching as earlier sections.
- Did I work with Goals understanding that's the start of spending?
- Did I Review my spending regularly and realalize I was drifting into debt?
- Did I Investigate features of loans to learn my responsibilities?
- Do I know the annual percentage cost of each loan?
- Do I know when I might repay each loan at present repayment?
- Do I know a credit card is not a financing source and I should pay the full balance monthly?
- Did I have Plans in place such as a financial plan and budget to carry out goals?
Did you have a GRIP on your finances? Write one-sentence to show your learning in this section. Do you see needed changes.
Needed Lifestyle Changes
What did you learn from this process? Each situation is different, but reality is no one can manage money, and your debts are yours. If you see needed behavior changes, you will need help to implement them.
Before we continue, check your financial health and then we begin looking at the numbers. Because we prepared to get here, this step might not be too difficult.
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Action Plan for Debt Free Lifestyle
First and most signficant, develop goals and plans then prepare a budget showing lifestyle changes and responsibilities for budget categories assigned to relevant family members.
Next, Prepare a debt repayment plan to erase loans, starting with the highest annual percentage cost loan. This is crucial. The temptation is to pay the highest loan value, but that might not have the highest interest rate. Meanwhile, ask creditors to lower interest rates... they might surprize you and comply. But, do not consolidate or restructure loans unless you made specific attitude and behavior changes. Without changed attitudes, debt consolidation is the worst alternative because it gives you false hope.
Often overlooked are assets you might sell to repay loans; selling assets is a huge decision, so mull it over, and get advice from a trusted friend before deciding. And ask that person to hold you accountable to follow your goals and plans.
Now you are ready to set up a spending decision procedure based on lessons learned to avoid re-entering the debt trap, and prepare a financial plan.
After reflection, write a one-sentence conclusion on your learning during this process. And understand this might be a long process, so must be patient. You got in debt over a long period; getting out of debt will take time.
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