One of the first steps to starting your journey to financial freedom is getting out of debt. Getting out of debt is no walk in the park, but it can be done.
A big obstacle I see for many people is actually cutting their “lifeline” like connection to debt. This usually means they are “cashflow negative” or in plain terms: there’s too much month and not enough money. When credit cards and payday loans bridge the gap for a family or business, it’s hard to untangle the web of dependency on borrowed money. To not have Visa around, for some families, means the difference between enough groceries and gas for the the month or not. If you aren’t using debt to bridge the gap between your money and the month, then negative cashflow can show up in other ways: bouncing checks or consistently late on paying bills. These are all the symptoms of being cashflow negative.
I realize this is a difficult place to be in. But there is a way out. If you feel like you can never catch up on bills or even get ahead, then follow these steps to get current and well on your way to a hopeful future with your money.
#1 Find out the Size of the Problem
Don’t guestimate here. You need to create a budget <- Check out this link for a tutorial on how to do this quickly and easily with a gmail account for free. If you just have to pay for something, try YNAB or a similar budgeting software.This means writing down your monthly expenses and subtracting them from your monthly income. If you come up with a negative number, you are cashflow negative! But how big is that number? It might only be $50, but if it’s as big as $500 or more, you might have to take more drastic actions. Be sure to update the budget monthly because you will inevitably underestimate expenses (forget what to add) in the beginning. It might take you a few months to get it right. That’s ok. Don’t wait until it’s perfect, however, to fix the problem. Go on to step #2.
#2 Attack the Problem According to the Seriousness
If you are really cashflow negative and don’t know how to feed your family next week, then you need to act drastically. You may have to cut out non-essentials like cable, hair appointments and ……wait for it……debt repayment. It’s not ideal, but you can’t be caught up in preserving your credit score if you are on the brink of financial disaster. Debt is what got you into this bind in the first place! Accept the fact that default and dings on your credit are a real possibility at this point. You can always come back and repay them at another time.
#3 Even the Playingfield
Basically, you need a good balance of decreasing expenses and increasing income so that you can at least become cashflow positive. As mentioned in #2 you will have to cut out non essentials and then go a step further to get reductions on you essentials expenses like utilities. We were desperate and did things like move in with my mom and opt of out air conditioning for the summer when someone vandalized ours. We also went with out cable for some time and recently I even cut off Netflix and switched over to Ting to get our cell bill down to $54/month for two phones. Cutting expenses is not the end of the story. One of the game changes for us getting out of debt was increasing income. I would literally be in prayer on a daily basis asking the good Lord for ideas to bring in income. I started selling things on Craigslist, went on to freelance marketing and eventually settled into database consulting. It is a business that I still run profitably today. Increasing your income must be apart of the equation. If you need ideas on how to get income up, check out my post on 19 Reasons You Should Never be Broke.
#4 Create an Emergency Fund
Use the money that you are able to hustle up with cutting expenses and increasing income to get an emergency fund in place. This is crucial to your attempt to become cashflow positive. Unless you have an emergency fund in place, you will be forced to depend upon credit. The suggested amount is $1,000 to start. For help on how to get this in place quickly, check out my article, 5 Quick Ways to Build Your Emergency Fund.
#5 Cut Ties with Creditors
If you are serious about becoming cashflow positive, you’ve got to stop depending on credit cards, loans and lines of credit to survive. Cut up your credit cards, close your accounts (if possible) and make a commitment to yourself to be done with debt. If you have a lukewarm feeling about the problems that debt has caused in your life, this process will be hard for you. You can’t play nice with debt in any way. Treat it as the consumer assault weapon it is and get rid of all temptation ASAP.
#6 Create a Long-Term Strategy to Become Cashflow Positive
Cutting expenses and increasing income are a good start. But extreme austerity and hyper-hustle can only last so long and go so far. Make a conscious effort to attack and deal with the root of the problem: bad money ideologies. When we found ourselves in this position, we made up our minds to not only ditch debt forever but to also change our philosophy around spending money, saving and building up enough wealth to pass on to future generations. Once you envision a future with abundance and the possibility of passing an inheritance to your children’s children, you will be in a good place to deal with the here and now.
Are you ready to stop the paycheck-to-paycheck cycle of never enough? Enter your email below to get access to my FREE email eCourse on getting out of debt. In just 5 short days, you can create the ultimate attack plan. I can help.