The days of putting tacos, socks, bubble gum, lattes and movie tickets on your credit card are over. If you carry a $10,000 balance with a 15.99 percent interest rate and make a minimum monthly payment of $200 a month, it will take you 83 months to pay off the debt. And credit card debt is not the whole story. Don't forget about auto loans, students loans, personal loans and bar tabs. If you really want to become debt-free, your entire life must become one big old budget.
You must live a debt-free life before you are actually debt-free. That's the advice of personal finance expert M.P. Dunleavey in the New York Times. Dunleavy argues that becoming debt-free is not strictly a money issue; it's attitudinal as well. Make a pseudo-budget mentally. Meditate if you have to, but get serious about separating needs from wants.
When you actually put pen to paper and figure out your household budget, the whole needs versus wants spiel comes into play. Of course, you need to track all of the usual suspects on the expense side of the ledger -- house payment, insurance premiums, utilities, cell phone bill, groceries, hour-long massage...you get the picture. Cut out the stuff that doesn't need to be there. You don't necessarily have to go without cable or a cleaning service, but do you really need the Playboy channel and a maid once a week as opposed to once a month? After you tally your legitimate expenses, take a look at your monthly cash flow. Circle the amount left over with a red permanent marker. Scrutinize your expenses again. Circle the new amount left over. Rinse and repeat as needed. There's almost always something that can be cut.
Hold yourself accountable. Before you even start seriously paying down the debt, track your expenses on paper, not in your head. Write down everything you spend money on. Jot down the form of payment -- cash, check (so very 1998), debit card and the things you should have flushed down the toilet, the credit cards. These curious expenses that you didn't account for when you scrutinized your budget 73 times over rear their ugly heads. You're buying a bagel here, donuts for the office there -- it's out of hand. Rein it in.
You've budgeted proper attitude. And you have put yourself through the ringer with the expense versus income budget. Now you've got to come up with a debt budget -- a strategy that outlines the logistics of how you become debt-free. Make a list of all of your debts and prepare to snowball them. As financial expert and radio host Dave Ramsey suggests, put all of your resources toward the debt with the smallest balance first. Make minimum payments on all others. Ramsey contends that by seeing fast results you'll develop the momentum to stay the course. When you pay off debt number one, move debt number two to the top of your debt budget and pay it off with an all-out attack, using the money budgeted each month for the now paid-off first debt to "snowball" paying off the next debt. You can also organize your debt budget with the highest interest rate debt first.