Hey, friends!! Today we have a guest author, Jason, from over at Celebrating Financial Freedom. He’s here to give us a bit of advice about how to pay off debt, and to share with us the new financial freedom training course he’s launched on his site. Welcome, Jason!
I HATE DEBT! If you were to ask anyone that knows me well, they’d quickly tell you that I’m all about getting out of debt and staying out.
But hey, there are a lot of ways to get out of debt. Some are intelligent and well thought out, and some just aren’t.
Today I’ll warn you against some of the common ways that people try to get out of debt that can put you in a much worse position than where you started.
At the end of the post I’ll also show you a great new resource for changing your financial life forever!
5 Things You Shouldn’t Do To Pay Off Debt
So let’s get this education train rolling. Here are 5 ways you should not try to pay off your debt.
- Taking Money Out of Your 401k or IRA- This one is extremely terrible because it avoids building any financial discipline and doesn’t change any habits. Even worse, you also get heavily penalized for withdrawing that money from a retirement account. For example: want to pay off $20,000 in debt? You’d have to withdraw almost $31,000 to cover taxes and penalties to do it. Plus you would be robbing from your future to pay for present problems. In the long run, taking money out of retirement accounts to pay off debt can actually end up costing you hundreds of thousands of dollars.
- Take Out a Home Equity Loan- So you borrow money on your home to pay off your car payments, your credit cards, your vintage ceramic kitty collection, etc. All you’ve done is transfer the debt from one place to another. Now you’ve put your home on the line. Guess what? Once again you didn’t change any habits. So you’ll probably end up extending that home equity loan and taking on even more debt now that you got those others “paid off”.
- Paying Off Credit Cards, But Not Changing Habits- Paying off your credit cards is a great start toward eliminating debt from your life. But if you don’t practice permanent behavior change along with it, you’ll end up on the debt train once again. I always recommend completely ridding yourself of those evil plastic demons of debt. You just don’t need’em. If you have them available you will use them again. So burn’em, shred’em, or vaporize’em with an Argon Laser. Do whatever it takes to get them out of your life!
- Filing for Bankruptcy- Most people don’t get in debt deep enough that they can’t work their way out. Filing bankruptcy can be a terrible decision that can follow you for up to 10 years. It can make it much more difficult to rent or buy a home, and in some cases it can even keep you from getting a job. Many potential employers make it a practice to check your credit score as part of their hiring process. If you’re deep in debt to the point that you think you can’t get out, find a reputable debt counselor instead of a bankruptcy attorney. Either way can be a tough road, but working your way out of debt with a rational plan (and changing habits in the process) is always better than bankruptcy in the long run.
- Using Emergency Funds- If you’ve had enough financial discipline to save up decent sized emergency fund, that’s awesome! You’re way ahead of the game compared to most people. It can seem like a good idea to pay off your debt with emergency fund money that’s just sitting idle, but don’t be tempted. Your emergency fund is an insurance policy that keeps your finances intact when financial setbacks happen (and they always will). Using emergency funds to pay off debt leaves you vulnerable and exposed. Besides, if you had enough discipline to build an emergency fund you can master the discipline to get your debts paid off over time.
Getting Out of Debt Involves 3 Things
There are a few good ways and a lot of bad ways to get out of debt. The best ways always involve:
- a change in habits,
- a change in priorities,
- and a change in mindset.
The bad ones don’t and will usually end up biting you in the behind eventually.
So as you resolve to start down the road to debt freedom, remember these three characteristics I just mentioned and don’t lose your brain and fall into one of the five traps.
Your future will thank you for it.
I Can Teach You How to Do It The Right Way
By the way, if you really want to change your financial habits and get out of debt permanently, you may want to check out my Celebrating Financial Freedom online course.
The Celebrating Financial Freedom course is about 5 things:
- How You Are Manipulated to Get Into Debt, and how it affects your freedom, your happiness, and your future.
- The Spiritual Aspects of Money– How your money mentality affects every aspect of your life, and how it can add to, or take away from your spiritual walk.
- Getting Out of Debt– The 5 step process that will lead you to debt freedom and keep you there.
- How to Get On The Same Page With Your Spouse About Money- Finally eliminate disagreements about money. You will learn how to work together and understand how your spouse thinks about money.
- How Handling Your Money The Right Way Changes Not Just Your Family, But The World as a Whole- Sometimes in very surprising ways.
Got a question about this post or need advice about your financial situation? Shoot me an email, I’m always glad to help!
Question: Have you made any dumb mistakes while trying to pay off debt? Leave a comment and tell me about it.
“Dr. Jason Cabler is a Christian personal finance blogger, author, and speaker. He teaches how to get out of debt and live a debt free lifestyle through his Celebrating Financial Freedom blog and self study course. His new book “How to Budget- The Quick and Easy Guide to Making a Budget That Works” is now available (more info here). He can be reached for interviews or speaking engagements by email, and can be found on Twitter, and Facebook,