By Chris Hogan
January 20, 2012
How to Get Out of Debt the Right Way
When it comes to money, everyone’s situation is unique. Their income, their debt, their expenses, their stage of life, their background and thought process—these are all factors that come into play in figuring out a realistic and sustainable financial plan—you know, a budget.
It’s a dirty word to some—who wants to budget, after all? But whether you are a college student, a newly married twentysomething or a 30-year-old with a baby, money matters. And figuring out how to make your finances work for you is a critical part of being a grown-up. It’s one that many have trouble with, too—after all, current statistics put individual consumer’s debt at nearly $8,000 for every man, woman and child in the United States.
With mounting statistics that show our generation is getting buried under piles of debt, we presented author and finance coach, Chris Hogan, with three scenarios that echo many people’s situations. Each one is fairly typical—you likely know someone going through one of them. But people respond in all sorts of ways. Here are some of Hogan’s tried-and-true solutions for getting into a better financial state.
The Recent College Grad
Sam is a 22-year-old male, just out of college, living in Chicago with $5,000 in credit card debt and $10,000 in school loans. He makes $30,000 a year at an entry-level job. He lives in a two-bedroom apartment he shares with a roommate, and his share of the rent is $550. He wants to get out of debt, but he also wants to have fun with his friends. Plus, he wants to fly home for an upcoming family reunion. What should he cut out?
It all starts with getting on a plan. Sam needs to sit down and spend every dollar “on paper and on purpose” before the month begins. In other words, he needs to make a budget.
By putting his expenses down on paper, he’ll be able to see exactly how much money it takes for him to live: rent, utilities, groceries and so on. Once Sam sees how much of his income is going toward expenses, he can then get a good idea of how much money he has available to attack the credit card debt and student loans.
Remember, income is the biggest weapon to fight debt. The quicker he eliminates debt, the sooner Sam will be able to keep more of his income.