Warren Buffett, the infamous billionaire chairman and CEO of Berkshire Hathaway has a famous quote: “When the tide goes out, you can tell who was skinnydipping.” It’s a quote that’s used to express the fact that when times get tough, you can tell who was least prepared. And while it can mean one thing to investors who stretched their bets too thin, it can mean something entirely different to those of us who have spent time under a mountain of debt.
Let me know if this sounds familiar. One minute you’re on cloud nine driving your new car, watching your big screen TV, or going on constant exciting vacations with your friends. And the next minute you’re sitting in your room alone, with your head in your hands, wondering how you could’ve let your credit cards, loans, and life get to the point where you feel like you have no hope of ever getting out.
We’ve been there.
But regardless of how it feels when you’re at your lowest, when you’ve realized just how much trouble you’ve gotten yourself into, you need to also understand that there’s always a way out. No matter how deep the debt hole has gotten and no matter how many bad decisions you’ve made to get you to that point, you can become debt free.
But you have to start now. Not tomorrow, not after you grab another Big Mac from McDonalds (or a Double Double from In N Out – whatever your fancy), and not after it finally gets bad enough that your spouse gets called by debt collectors about the balance on the credit card they didn’t know existed. The time is now.
But how do you get started?
Between the thousands of different plans offered over the internet, it can be extremely hard to figure out which plan may work best for you (and it can be even harder to dodge all the ads for courses that promise they’ll teach you how to get out – for just seven easy payments of $19.99!). And while I can’t tell you which of those may work best for you, I can tell you about the plan that my wife and I used to dig ourselves out (no payment required).
It never had a name when we lived by it. But today we’ll refer to it as the Debt Triangle. Made up of three parts that are each as important as the last, it’s an effective and motivating plan that brought us together in our marriage, strengthened our minds against the pressures of comparing our lives to others, and ultimately drove us straight out of debt and onto brighter skies.
THE DEBT TRIANGLE
THE FIRST POINT: ACCEPTANCE
Do you know why the Alcoholics Anonymous program begins with a focus on acceptance and admission? It’s because real and lasting change requires swallowing a series of truths that we may not want to hear and don’t want to admit. It involves not only accepting them as they are but also completely surrendering to that truth or else risk the danger of being stuck in a limbo of precarious sobriety and an untimely relapse.
Acceptance is the foundation of change. And without a strong and properly reinforced foundation, anything that’s built on top of it will crumble faster than President Clinton under the paralytic snake-like gaze of Monica Lewinsky.
That’s why this is the first point in the triangle. In this first step, you’ll want to:
- Take a real moment to sit down and acknowledge, accept, and analyze what has happened to get you to where you are.
- Open your computer and pull up your online banking, credit card statements, and loans, and go line by line to locate your worst spending habits and accept that those locations/providers are problem areas for you
- Determine if your weakness isn’t a place, but instead, a time – for example: shopping at Walmart immediately after you get off from a stressful day at work tends to increase your spending by 17%.
- Look around your home and see what you’ve purchased that is collecting dust. Acknowledge that you likely shouldn’t have purchased those things in the first place and vow to not buy more of them in the future.
- Compile all of your debts into an organized list so that you can mentally face the total amount of debt that you’ve accumulated and acknowledge that what’s been done is done and can’t be taken back no matter how confused/angry/sad you want to get about it
Back when my wife and I did this, we sat in our living room with our computers open, eyes glued to our screens, and we reviewed everything line by line until we looked like Sponge Bob in that episode where he tries to convince Sandy that he doesn’t need water (“I don’t need it!”). But once it was all looked over and we had a nice spreadsheet compiled of all of our debts, a huge weight seemed to be lifted off of our shoulders. The fog that surrounded us and masked our finances from each other lifted and a sense of accomplishment set in. We were finally ready to stop the free fall backward and start moving forward.
THE SECOND POINT: REASONING
Acceptance is great and it can make you feel much better about your financial situation, but it’s important to remember that acceptance is only the foundation for what’s to come. And a foundation is most useful if you build something on top of it that can handle any storm (specifically category seven “turd hurricanes”). This brings us to the second point of the triangle: reasoning.
You need to develop solid reasons to prevent you from regressing and heading right back to your old ways as soon as temptation rears its ugly head. You know what I’m talking about: a tough day at work leads to a night out on the town to decompress, accidentally throwing your Wii nun-chuck through the TV culminates in convincing yourself that you deserve a new 4K HD TV to replace your broken LCD screen, or you simply can’t convince yourself not to order your usual number ten at Taco Bell when you know you never actually finish it. The temptation is out there. You have to be ready for it.
In this point, you should ask yourself these questions:
- What/who are you getting out of debt for?
- What is your long-term goal once you’re out of debt? Buying a house? Sending your mother on a cruise? Being able to once again afford the number ten at Taco Bell?
- What will being in debt prevent you from doing in the future?
- Who might you be hurting by being in debt?
- What drove you to want to get out of debt in the first place?
These are important questions to ask because the answers may very well be the thing that separates you from throwing yourself right back down the rabbit hole. Remember that good reasoning can provide a powerful force to support your drive to get out of debt. Make sure that you answer these questions honestly and provide the strongest reasons you can muster. Then, write down those answers because you’re going to rely on them in the third and final point.
THE THIRD POINT: ACTION
No great thought has amounted to anything without an action being attached to it. At this point, you’ve accepted and come to terms with how you got into debt, you’ve organized your finances, and you’ve created a series of reasons to keep moving forward when roadblocks appear. Now it’s time to take powerful action to fight back against the evil forces of debt. I hope you’ve enjoyed spending up to this point because you’re about to get serious.
In this step, you need to halt all of your spending outside of buying the necessities. That means no new video games, no new clothes that you don’t need (since your closet very likely has more than enough), no quick stops through the drive-through to grab a bite to eat when you have groceries already stocked in your fridge at home, and definitely no blackout nights at the bars where you lose your wallet after talking to that chick that can’t stop mentioning her ex-boyfriend from seven years ago. It’s time to get real.
When I say necessities only, I mean necessities only. If you don’t need it to live, you don’t actually need it. Here are a number of necessities to review before moving on:
- Shelter: That’s a necessity. But you should make sure you’re living in the most economical way you can. You don’t need a three bedroom apartment if you’re a single guy/girl with no pets, no live in roommates that aren’t paying rent, or a business that you run out of those bedrooms. It’s just wasted space that you’re paying energy costs for with nothing to really show for it.
- Food: shop once a week at a grocery store, don’t shop while hungry, and plan your meals ahead of time. Cost effective meals can include but are not limited to: Kraft Mac and Cheese, a box of pasta with a jar of sauce, a loaf of bread with peanut butter/jelly, Top Ramen (but don’t overdo this one or you’ll balloon or end up with even worse long-term health effects), a frozen pizza, giant bags of frozen chicken and a small container of pre-mixed spices (jerk blend, etc) and rice, a bag of ravioli and a jar of sauce, and a bunch of bananas to cut up and make into PB and banana sandwiches with the PB and loaf of bread you already got for PB and J. You can also rely on eggs to create any number of dishes since they’re typically found at rock bottom prices.
- Gas: if you have to commute to work, you’ll need to use just enough gas to get you there and back each day when you’re required to report. Outside of that, plan every trip to make sure that when you leave the house to go to the store or run errands that you get everything done on one trip and you don’t have to double back. Be as efficient as possible.
- Transportation: if you don’t need a car, don’t use one. Got a bike? Can you ride it to where you need to go? Try using that instead. Or maybe take the bus. Or walk?
- Health/Dental/Car/Home/Renters Insurance: do not let these lapse. Pay these like your life depends on them. Having insurance can prevent you from finding yourself waist high in further debt the likes of which you’ve never even imagined.
You get the point. If you don’t absolutely need it, don’t spend money on it. Now, how many of you did I lose now that I’ve got that out? A lot? I really hope not.
I know it sounds horrible to not be able to spend any money on other things outside of what you absolutely need but I want you to realize something important. The hole that you’re in took a big shovel to build. If you want to get out, you’re going to need an equally strong earth mover to fill it in with new dirt. And it’s going to require sacrifices to afford that earth mover.
But those sacrifices don’t need to be painful. There are hundreds, if not thousands of free or nearly free activities that you can take part in to keep you busy while you wait until you can spend some money again after you get out of debt. You just stopped thinking about them as you grew older and got a taste of what money can buy.
Here are just a few free/nearly free activities to busy yourself with:
- Find a walking trail in your area. Most cities in the US have numerous trails running through them, either paved or covered in crushed rock. Go to your favorite search engine and find where they are. Give them a good stroll while listening to free podcasts or your old music. Or better yet, call a friend and invite them along for a good chat.
- Attend a free seminar. Do you have any idea how many free seminars are going on at any given time? It’s unreal. Look them up in your city and go learn something new. Just don’t fall for any get rich quick or pyramid schemes.
- Listen to free live music in a local park.
- Rent a book from your local library
- Rent a movie from your local library (free movie rentals!)
- Use your bike/scooter/energy efficient jetpack to tour the city
- Start a free blog and start writing about something you’re interested in
- Join habitat for humanity and help build homes for those in need
- Swim at your neighborhood pool or pay the small fee (typically it’s about a buck or two) to access your city’s public pool
- Call your parents and have a nice long chat to catch up (they’ll appreciate this one). Maybe explain your situation and see if you could come over for dinner? You’ll save money on dinner. They’ll get some fun conversation with you. You’ll leave with a full belly. And they’ll see you off with the respect a parent gains for their child when they don’t ask for money and simply try to handle their own business like an adult.
- Write a book
- Learn something new by watching Youtube videos
- Volunteer at a local senior center – there’s always someone there who would love to talk and the wisdom you could gain will pay dividends in the future. It’s a win-win!
- Have a picnic in the park with those PB and J sandwiches we talked about earlier.
The point is, there are tons of free or nearly free things to do in your city. You just have to look for them. And with the power of the internet, this has gotten so much easier. Between Facebook groups, Craigslist, and other free networking sites, you can seemingly always find something fun to do for free (and sometimes without even looking – all thanks to your neighborhood busybody, Nancy, who for some reason can’t stop liking each and every post you make on social media. Like, is this the Truman Show?).
Now, once you’re living the life of spending on necessities only, you’re going to see a little change in your bank account.
It’s going to have a lot more money left in it.
Simply congratulate yourself on a month well lived where you didn’t borrow any more money from any other unsightly entities. But that brings up your next action: using those savings in the most effective way to pay down your existing debts.
And let me tell you, there are a lot of different ways of doing this. But there are really only two that consistently come up – the debt snowball plan and the debt avalanche plan. Both have their strengths and both have their weaknesses.
The debt snowball focuses on listing your debts from smallest to largest and paying them off systematically in that order. This works well for a lot of people because the act of paying off a debt (no matter how small) can be motivating and by focusing on the smaller ones first, you can gain some quick wins right from the start.
The debt avalanche, on the other hand, focuses on paying down your loans by order of the highest interest rate to lowest. This approach is pitched as being a better plan because higher interest rates will cost you more each month as you’re paying down loans than lower interest rate accounts. They’re therefore prioritized in the effort of speed. But the avalanche ignores the value that the snowball puts on motivation as a key factor of escaping debt.
This begs the question: which one is truly better? And the answer is that sadly we may never know. What works best for some people doesn’t work for others. Some people are more motivation driven and others are more driven to simply escape debt in the fastest manner with no regard for small motivational bumps.
This conundrum led my wife and I to ask the question: why not both? Why couldn’t the plans be merged to bring the best of both together for the ultimate debt obliterating motivational machine? And that’s where we came up with our modified debt escape plan: the grizzly debt attack method (or, if you like it better: the “we modified it” plan).
The Grizzly Debt Attack Method
- Order all of your outstanding debts from highest interest rate to lowest.
- Pay your monthly minimum balance on each outstanding debt
- If what’s left can completely pay off any single outstanding debt entirely, pay that debt off.
- If you cannot pay off any single outstanding debt with what remains after paying the minimum balances, pay down the debt with the highest interest rate
This plan takes the Avalanche’s speed of payoff and combines it with the motivational checkpoints of the snowball. It’s one part Usain Bolt and one part Oprah. The perfect debt crushing machine.
And once my wife and I deployed this method on top of the first two steps of the triangle, it only took one year before we were able to completely pay off all of our debts. This included both of our cars, her student loans, and all of our consumer credit cards (of which there were many). In the process, we were humbled by what we discovered we actually needed to be happy, we learned to stretch what we did need, and we found a new drive to create new ways to increase our income to get out faster.
Additionally, once we were out, we were able to truly start planning for the future. We quickly saved for our first cash backed trip, became more generous with our spending to help others, and started loading even more toward our retirement funds. Then, a short time later, we learned we were expecting our first child. With no debts to speak of, we responded by pumping up our saving even more and that allowed us to make the decision to have Momma Grizzly Bear stay home when the little man made his grand entrance (a feat that would have been impossible before).
Getting out of debt is no small feat and it can feel extremely daunting at times. There will be days where you can’t help but scream at the sky like Keanu in Point Break. But if you can curb your spending habits, keep your eyes on the prize, and remember what you’re digging for, you can get out. Don’t lose sight. Regardless of whatever mishap got you into the mess in the first place, there is no hole deep enough that you can’t eventually climb out. Become humble in what you have, come to terms with what you’ve done, and love who you can become.
We learned a lot of lessons on our road out of debt but there were a few key items that really seemed to help us keep our eyes on the prize while we followed the debt annihilation plan. Here are what we found most useful:
Multiple Bank Accounts:
This came from the knowledge we gained from researching Dave Ramsey’s debt snowball. In his plan to get out of debt, he suggests to followers that they should separate their paychecks into envelopes to keep their budget on track. But while we acknowledged that this made a lot of sense, it just wasn’t practical for us because we weren’t always with each other and that meant the envelopes almost needed to be split in two. To get around this, we went to our bank and opened up a series of different savings accounts that we could split our paychecks into (ex: main checking, food, emergency, transportation). This created virtual envelopes that she and I could track at any given moment no matter whether we were together or not. These accounts cost us nothing to open and in fact, saved us money because the bank removed the monthly service fee due to having multiple accounts with them.
Never put your social status at a place where you feel you’re above using coupons. Hundreds of stores list coupons on phone applications, send mailings to your email if you register for them on their website, and send physical copies to your mailbox with huge savings. When we would get to particularly low points and we needed a small boost of morale to keep going, we would use a few of the best to send us for a budget-friendly “night out”. Our favorites were the dinner for two from Arby’s (two sandwiches, two fries, two drinks, and an order of mozzarella sticks for $9 after-tax) and the dinner for two from Burger King (two large whoppers, two fries, two drinks for $7). Not the healthiest choices but since we weren’t taking advantage of these too often, they sure felt like a treat.
This was my personal favorite and a key source of motivation. One of the hardest parts of getting out of debt is seeing how big the number is at the start and how slow the needle can seem to move as you throw payments at it. To stay motivated, I purchased a whiteboard and stuck it to the center of the wall that we have to pass by each and every time we walk from the bedroom to the living room. On that whiteboard, I wrote out the original total balance of our debts, how much we had paid so far toward those debts, and how much was left until they were paid off completely. Additionally, I wrote in big bold lettering the reasons why we were getting out of debt and the goals for the future once we were out. This provided us with ongoing motivation as it showed us every day how much we had paid off and it reminded us what we were fighting for. Even if the total remaining balance was daunting, we could see how much progress had already been made from the original balance.
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