The last couple of days we talked about how you got into debt in the first place; we made the choice.   As I mentioned, taking responsibility is the first step in turning things around financially and eventually getting out of debt.  I don’t want to kid you either, I have been there.  You know; blaming the “stupid credit card companies,” the economy, high interest rates, etc.  None of that ever got me out of debt though.  This isn’t one of those sites where, I am going to complain and point fingers every day.  You know, the sites that proclaim the sky is falling, so you mine as well stay inside.  Quite frankly, “screw that!” I’ve seen enough of what works and what doesn’t.  I’ve seen countless investors make it by following simple concepts and strategies and watched multimillionaires lose it all because they thought these concepts didn’t apply to them.

The truth is that when we stop and look to the right and the left, we realize that no one has a gun pointed at us forcing us to buy stuff we can’t afford or make irrational decisions.  One of the reasons we go off the deep end is social pressure as in trying to maintain the status quo.  Well, you have to say “the heck with the status quo!”  The average American does not prepare for things financially and just goes through life with the mindset that I’ll take care of that later.

I want to give you a couple of rules today before we get into the strategies of paying off debt.  Before doing so, I should clarify that when I talk about paying off debt and becoming debt free, the ideal is to own everything: the house, the car and have no credit card or revolving credit owed.  But I also realize that you own a home and aren’t going to pay that off in the next 3-5 years.  I also realize that you have a car payment and that a car is necessary for your everyday life.  You are going to have to ask yourself if you are driving too high priced a car.

Rule #1 – Stop using credit cards and acquiring new debt right now.  I know this may come as a shock to you but if you’re going to be serious about getting out of debt, you’ve got to “pull the plug” first, so that you can begin to make headway.

Rule #2 – Don’t ever use credit for consumption or discretionary spending again.  One of the biggest mistakes people make is using credit cards for eating out, buying clothes, drinks, entertainment, etc.  This would also include financing a boat, a yacht or a motorcycle on credit.  These items are either consumer of depreciate in value long before the interest starts accruing and compounding against you. You have got to get this relationship correct once and for all.

A little more on Rule #2.  The only time that using debt should be acceptable is when you are making an investment in a business that has a well thought out business plan and the return is expected to more than cover your debt and all interest.  Most people are very very unrealistic with their assumptions.  If you think I am kidding, just think back to the housing bubble.  A mortgage is okay as well, but I think you should always try to pay it off faster.  Even then, you need to stick to certain debt/income ratios so you don’t get into trouble.  Personally, I don’t like debt in any form.

Related posts:

1. Pay OFF Credit Card Debt, Getting Into Attack Mode
2. Time for the How To Stuff, Getting Down To Brass Tacks for Getting Out of Debt