Preparing for a rainy day is difficult, but not impossible. Here is a four-step strategy that is simple and doable:
1. Pray. Your heavenly Father is eager to help you get out of debt. Not only does He want to help He has the resources to do it. Pray that God will give you the wisdom and courage to take the necessary steps to get out of debt. God honors those efforts.
2. Stop incurring new debt. You can’t get out of debt if you keep going into debt. Stop the outflow. This might require that you stop using credit cards and consider an all-cash system. While it might seem old-fashioned or cumbersome, it’s a helpful way to break habits formed over the years. When it’s harder to spend money, you won’t spend as much. Whether you use a debit card or cash, the point is to keep from going further into debt.
3. Set up an emergency fund. This step prepares you for a rainy day – those unexpected expenses. Before you begin to work on a debt repayment plan, protect yourself by setting up an emergency fund. Financial experts often suggest building an emergency fund to support three months of expenses. But your first goal will be to save $1,500.00 for emergencies.
4. Begin working on a debt repayment plan. Developing a repayment plan is one of the most powerful things you can do. The first step in this process is to face reality...list all of your debts to see just how much you owe. To do this, simply begin listing your debts from the smallest to the largest amounts (don’t worry about interest rates at this time). Then plan to pay the minimum on all your debts except for the smallest. On this debt you will pay as much as you can to pay it off quickly. By attacking the smallest first, you begin to quickly eliminate creditors from the list. With each payoff, roll the amount you were paying into the next smallest debt (this is called a debt snowball because the amount available to pay on a single debt increases each time you pay one off). Continue this strategy until you are debt free!