How To Save Your Way Out of Debt
Today we are going to show you How to Save Your Way Out of Debt.
Do you want a way out of debt?
Ever pay off all your credit cards and get a sigh of relief, only to get back into debt again?
Ever consolidate debt, and feel a sigh of relief, only to get back into credit card debt again along with the consolidated debt?
I’ve done all that, and finally climbed out of debt, and became debt free in April of 2016, and quit my full time job on December 23, 2016.
I started paying myself first, which means saving money for my financial freedom, and that was the key to getting out of debt and creating more freedom in my life.
I recently read in Financial Recovery by Karen McCall that it’s important to break the debt cycle by saving. She creates a whole process and breaks down the methods and mechanics of saving your way out of debt FOREVER.
Level 1 – Stabalizing Debt by Saving For Periodic Spending
The first level of saving is to stabalize debt. Instead of trying to pay off all your debt, you are saving money so that you can stop using your credit cards.
How do you save money?
Most people are paying extra to pay off their credit cards faster. The method she recommends is to stop doing that and put money towards savings.
In this way, you are building up a pool of cash that you can use for periodic expenses like auto repairs, medical emergencies, dental work, weddings and funerals, and so on.
When you have this money in savings, then when those expenses come up, you are not going to be using a credit card and getting into further debt.
Level 2 – Safety Net Savings
Safety Net Savings is saving 3 to 12 months of your monthly income, in case you have an interruption in your income.
This interruption could be voluntary or involuntary.
During Covid many people were in between jobs, and it’s important to have money so that you can still live in your home while your looking for new income sources.
It also gives you less dependency or feeling imprisoned at your job.
If you feel like you could always change positions or quit and look for different work, then you will feel less desperate and more free.
Level 3 – Long-Term Investment Savings
Level 3 is savings for retirement. If you save here first, and don’t do the other 2 levels, you may find yourself pulling out of this level to pay for emergencies.
This brings on guilt and shame.
The best way to do long term savings is to focus on it last, after you create the first 2 levels.
I’ve noticed this is what happened to me in my own personal development. I got out of the debt cycle in 2016, but I didn’t start contributing to my own Roth IRA until 2020.
Conclusion
I love how Financial Recovery explains How to Save Your Way Out of Debt.
I did it differently as I started with saving for Freedom, which, if you can do it, will work miracles in your life.
I agree with all of her methods, that saving is key to breaking the debt cycle.
I would just say you must save for Freedom first, and then do levels 1 – 3.
What do you think?