8 Ways to Reduce Your Debt

In June 2006 my husband I had over $50,000 in debt, plus our mortgage. We decided to get out of debt and stay out of debt for the rest of our lives. It took 2.5 years, but in November 2008 I wrote the last check to the last creditor and paid off the last of the $50,000+. I’m grateful to say that we’ve remained debt-free since then including paying cash for my husband’s graduate degree and a new-to-us, 3-year-old minivan.

If you’re going to get out of debt and you want to avoid falling into debt again, there’s just one thing you need to do. It’s a simple, but hard. Ready for it? Here it is: Don’t spend everything you make. Save some of it.

Saving money for tomorrow’s expenses is the only way to avoid debt. Here are 8 things you can do right now to turn your finances around:

1) Quit waiting for tomorrow. When you get a pay raise or tax refund, then your financial situation will change, right? Wrong. You’ve gotten a tax refund or pay raise before, but probably aren’t any better off now than you were then. Decide to change with what’s in your bank account today.

2) Keep calm. An increase in anxiety is shown to cause a decrease in motivation. Your motivation is the single most important thing you have as you change your finances, even more than your money. Guard it with your life.

3) Change your self-talk. The running commentary in your head reveals your values about earning, saving and spending. Replace not-so-helpful phrases with something positive to make lasting change on the inside. That kind of internal change eventually works its way into our behavior.

4) Automate your savings. Establish an automatic monthly transfer from your checking account into your savings. If you trust yourself to do it at month’s end, then you’ll never have enough money to do it. Ask me how I know.

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5) Distance yourself from your savings. Open a savings account at an online bank like Capitol 360, Ally or Perkstreet. It takes 3-4 days for funds to transfer back into your checking account, which is just long enough to keep you from depending on it to avoid bouncing a check.

6) Keep track of your money. If you don’t know how much money comes in and goes out, then it’s impossible to live within your means. Use money management software to track your spending and saving. I like You Need a Budget because it requires you to give every dollar a job – whether next summer’s vacation, car repairs, or tuition – to help you set aside money for life’s expected, but non-routine expenses.

7) Use the debt snowball. Pay your debts off in order from lowest balance to highest balance without regarding the interest rate. Use a laser focus to pay off the lowest balance loan first. Then, when that loan is eliminated, don’t absorb your monthly payment back into your budget; continue dedicating it toward debt by applying it to the next debt on your chopping block.

8) Plug the leaks. We spend money on things that derail our best-laid financial plans because hey, “I deserve a treat.” Go ahead and enjoy life, but plan for it financially so that money stops leaking out of your checking account without you understanding where it’s going.

Have you ever made a financial U-turn? What words of wisdom do you have for other moms who are looking to do the same.