As a nation, we’re individually mired in debt.  Achieving financial freedom is strange to many people because they accept that they will always have a mortgage and a car payment, but many also accept that they will always have student loans and credit card balances.  They argue that life is just too expensive, and there is no way they can make it through without credit.  However, there is a simple way to get out and stay out of debt.

Why Gazelle Intensity Doesn’t Always Work

If you’re deep in debt, you may want to follow the Dave Ramsey approach and become gazelle intense, funneling all of your extra money into your debt snowball, even if it means that you’re neglecting other categories of your budget like your house and car repair fund and your retirement.

While gazelle intensity works great if you only have a small amount to pay off, say $10,000 to $15,000, many people are far deeper in the whole than that, and it’s very difficult to remain gazelle intense for years.  Gazelle intensity is meant to be a sprint, ideally for less than a year, not several years if you’re heavily mired in debt.

In addition, while it’s easier to neglect certain categories in your budget for a year or less, doing so for longer will cause problems.  Your car will need repairs over the course of several years.  Your home will need repairs which may be minor, or unfortunately, major.  But because you’ve been funneling everything into your debt snowball, you may not have enough money to pay for a repair in full, so your only choice may be to pay on credit and negate your progress.  How discouraging is that?

A Simpler, Slower Way to Get Out of Debt

These days I’m all about moderation, even for those who have significant debt.  There is a simple way to achieve financial freedom—quit accruing new debt.

The only way to do this is to make sure that you have a realistic budget and money set aside for emergencies and irregular expenses.  Put away the credit cards so going further into debt isn’t an option.

Paying Down Debt

Then, pay the minimum on all of your debts and don’t reduce that number as the minimum payments go down.  Let’s say between all of your debts, your minimum monthly payment total is $1,365.  A year from now, since you haven’t accrued any new debt and the balances are going down, your minimum monthly payment might have dropped to $1,290.  Don’t reduce your minimum monthly debt repayment.  Instead, readjust your payments so that you’re paying the minimum payment on all bills except the smallest one.  On the smallest one, pay the additional $75 that is the difference between your minimum monthly payment last year and your minimum monthly payments this year.

Sure, it’s hard not to want to pay more than the minimum monthly payment that you started with in the beginning, but the idea isn’t too pay all the debt down immediately.  The idea is to continue to budget and fund all of the necessary categories so that you can achieve financial freedom.

Setting a Realistic Budget

So, you’ll take a realistic look at your expenses.  If you have a home worth $200,000, you’ll set aside at least 1% of that price a year in a repair fund (approximately $166 a month).

If your car is old, you’ll set aside a reasonable amount monthly for repairs and maintenance—maybe $200 a month.  And if your car has over 150,000 miles, it may be time to set aside a monthly amount to buy a new car in a few years—with cash.

Determine an amount that you want to set aside monthly for an emergency fund, and then just keep adding to that fund whether you have an emergency or not.  Some time, you will have a major emergency, and you’ll be glad that you have a full funded emergency fund so you can pay in cash, not credit.

Getting and staying out of debt requires that you stop using credit and that you have a budget that considers all of your true expenses for the year.  While this process make take longer, it also assures that you will achieve financial freedom.

Which approach do you take to get out of debt?  What would you advise others who are deeply in debt?