Imagine for a moment that you have finally paid off your last debt. That likely means you have all that money you’ve been snowballing for debt repayment that can now be incorporated back into your budget. It’s almost like getting a raise, right? So what would you do with that money? How much would you save? What goals would you start working towards now that you have a couple extra bucks? And what new spending categories would you add to your budget?

Head on over to the interactive budget and recalculate your budget assuming your debt is gone and all that debt repayment money is yours for the keeping.

This is a great exercise for three reasons:

1. You will remind yourself of just how dumb debt is.
2. You will enjoy the anticipation of being debt free and that’ll help keep you on track.
3. You can start planning what you’ll do with the money once you do get to debt-free forever.

This third point is just as important as the first two. Sometimes, having finally achieved debt freedom, we become intoxicated with all the extra money we have in our cash flows. The danger is that we may start thinking of ourselves as “rich” and stop paying attention to the details.

The flip side of this is the unwillingness to spend that sometimes comes after years of living carefully. Having scared ourselves to death and promised to always be vigilant in not “wasting” money, we find it extremely difficult to go out and spend.

Both these reactions are just that: reactions. They are emotional. They aren’t based in logic or sound money management. And one of the best ways to overcome them is to start looking at how life will be different down the road so you can get used to the idea of finally being debt-free.

No one says that the first budget you make has to be the budget you end up living with. This is your opportunity to practice, at least on paper, how you’ll deal with the extra money you have in your cash flow once the final payment on your debt is made. At first you may want to just blow through some money because you can. Or you may finally be able to start saving towards home ownership, going back to school, or a long-wished-for family vacation.

It’s your money. You can do anything you want with it. Take your new budget and post it up on your bulletin board or on your refrigerator. Look at it. Enjoy it. And as you get used to the idea of having more money to spend, think about what it is you really, really want. Adjust your Debt-Free Budget as you figure out what’s most important to you. Stay focused on the future and how great it will be to have eliminated the weight of debt you’ve been carrying. Dream. And think.

Eventually, you’ll tweak that budget to be just what you want it to be. In the mean time, anticipating how life will be different will help you see how what you’re doing without today will bring a big payoff tomorrow.

I’m always turning over a new leaf. Whenever I find that I’ve been doing something that’s not really working for me any more, I turn over a new leaf. The new year is a time of reflection and opportunity to do things differently.

If you blew your brains out over the holiday season, decided you “needed” a new big screen TV on that buy-now-pay-later plan, went nuts at the mall, or HAD to have a new car, consumer debt is your hangover. If you’re walking around with a big fat line of credit or credit card balance this may be the year you decide you’re finally Done With Debt. Once you make a commitment to paying off your debt and start taking the right steps, you’ll be surprised at the relief you feel. Whether you have to give up your super-de-duper cable package or trim back your coffee habit from two a day to once a week, you can find the money to make this happen. Really determined to be done with debt? Maybe you’ll get yourself an extra job until it’s gone. Now you won’t have time to miss the cable you gave up.

Bad habits are another “turn over a new leaf” opportunity. You may have bad habits you don’t even recognize: the magazines you automatically pick up at the cash register, the over-the-top cell bill, the weekly mani- and pedi you can’t live without.  It’s time to look at how you spent your money in the last couple of months and decide which habits you’re going to change for the better. Whether you decide to pack your lunch, chop back your beer and wine consumption, or exchange smoking for walking, you likely have a number of things you can do differently to make your bottom line balance.

Can’t decide what to do first? Wish you had someone to tell you which priority should take precedence? Indecision is a nasty blocker. And standing holding two ideas without moving is a sure way to get nowhere. It doesn’t really matter which one you pick, you’ll be better off getting in gear than just looking at the options and shaking your head. Yup. Just pick one — any one —and get moving.

If your waffling is based on the fact that you really don’t know what to do – you lack information – then it may be time to turn from ignorance to knowledge. If you are allowing ignorance to be your excuse for not taking control of your money and your life, you’re a world-class dope. Books abound. Websites are full of fabulous information. And you can always find a friend who is good at the very thing you want to accomplish and let her lead you through the maze. Or make a new friend and work on your goals together. But to stay in the dark… man, that’s just dumb.

Course, sometimes people choose darkness because they are just plain lazy. Since it takes real effort to change, to do things differently, some people just can’t be bothered. They rather whine about what’s wrong than create an action plan and focus their energy on what they really want.

If your albatross is your sense of entitlement – I work hard, I deserve a vacation – then turning over a new leaf will mean:

• coming to the realization that you are only entitled to what you can afford,
• you can have it all, but not all at the same time, so you’re going to have to make some choices, and
• you are the author of your own fate, so you can stay mired in misery or finally take control of your money and your life.

If there’s one thing you should head into 2010 believing it is that you are the master of your own fate. You have choices to make and you can make those choices work for you or against you. But it will be YOU who decide through a well-thought out plan, or through apathy and indecision. It’s your life. What do you want it to be?

As y’all know, I’ve been shooting a pilot for a new show. This is a pilot, folks, just a kick at the cat, and no one knows what will become of it. But the process of moving from TDDUP where the objectives are clear, to a new show where the objectives are different has  made me say, “hmmmm.”

One of the things that I’ve been noodling through this process is the idea of deciding what a body really wants. Both on a life front, and as part of the pilot process, this idea keeps popping up.

Very often when we don’t focus on what we really want, it’s easy to get distracted by what we kinda want. Instant gratification carries the day because we haven’t clearly defined what’s drop-dead important. Without a clear picture of what we really want, it’s so easy to become distracted without seeing the consequence of our distraction.

Some people are under the impression that a budget is what they really want because they have a sense that a budget will save their butts. I warrant that no one actually wants a budget, that we’d all be happy to spend whatever we wanted, whenever we wanted, without giving it a second thought. The people who have a budget are the people who know what they really want and aren’t prepared to let it slip away from them. They have a very clear picture of where they are going, and they are hell bent and determined to get there, so they nail the details down and use the budget to keep themselves focused.

If you browse around the personal finance blogging world you’ll come upon myriad folks who really want to be debt free, really want to buy a home, really want to become smart about managing their money. By posting their progress, they’re using their declarations to keep them on track.  And yet, so many people with so many good intentions, fall off track and blow money on crap just because… they got tired of being so tightly focused, their personal circumstances changed and they had no back-up plan, or what they really wanted was so big and so far away that they just stopped believing it was possible. Let’s face it, a winter vacation in the midst of the Feb Blahs has way more pull than the long term desire to get your line of credit paid off… unless, of course, that’s what you REALLY want.

People write me regularly to tell me what a mess they’ve made of their lives and how much they wish things could be different. Usually they want me to give them a plan, hold their hands, make it better. I’d love to be able to do that. But it won’t help since MY budget is something externally imposed and the only way to get from here to there… from where you are now to where you want to be… is to figure out what you really want. (Since all the tools are on this website, I am still surprised by the number of letters I get asking me how to do this.)

I have been blessed in my life by knowing what I really want: I really want to be happy. That’s not to say that I’m always in a state of bliss. As y’all well know, I’m a girl in transition and sometimes I’m not even close to what I really want. But I know what it is, and that keeps me working to rebalance my life, to figure out what’s wrong, to make changes that will get me from here to there. I am determined to be happy, and if that means shaking things up, that’s what I’ll do. If it means taking the time to stop and breathe, to look at what I have and what I’m missing, that’s what I’ll do. I’ll do whatever it takes to be happy.

Those of you who really want to be debt free need to know that to the very core of your being. It can’t be a thing you just say or it’ll never happen. Every time you want a cappachino, a DVD, or a new pair of running shoes, you’ll go for the instant gratification because what you really want is the short-term jolt of pleasure. When you know what you really want at your very core, the idea of wasting money on coffee, movies or shoes is so distasteful to you that you CAN’T spend the money. Putting money on anything but what you really want is so not going to happen that you don’t feel any sense of loss at all because you’re steadily moving closer to what you really want.

People head off to university without knowing what they really want. They end up flailing: drinking beer and skipping classes. Without something solid that they really want, they can’t stay focused.

People buy homes without knowing what they really want. They settle for what they can afford, buy more than they can manage, or sell and move in just a couple of years, as they search for the magical place with which they’ll be satisfied.

People go shopping without knowing what they really want. They have an inclination, but no clear picture of what they want, what it’ll cost, and how they’ll pay for it.

People get married, have children, work jobs, live lives and never figure out what they really want. They substitute activities for being, and acquiring for enjoying what they have.

It’s easy to want it all now, particularly when we don’t know what we really want. Figure that out, and you’re more than eighty percent home. The other twenty percent may take a lot of hard work, but it won’t be onerous or leave you feeling deprived because, finally, you’ll be getting what you really want.

Okay, you messed up. Big-time. You owe a ton of money. You’re working, but not making enough to deal with your life and your debt. What’s a body to do? Here are some things to think about.

Sell your stuff. It doesn’t matter how much you paid for it, or how little you can sell it for, if you have stuff that can bring in a buck or two, sell it. Old textbooks can be sold at Amazon. Craigslist and eBay are other great sources for hawking your stuff. From fitness equipment that’s now just a hanger for dirty clothes, to old furniture, electronics and toys, you probably have a few hundred dollars sitting around taking up space. Convert it to cash and pay down your debt.

Get a second job, a third job, a better job. You’ve heard me say this before. I don’t care how hard you have to work. If you’re in the hole you need to find the will to work harder. There are 168 hours in a week. Assuming you keep half for yourself, you can still work 84 hours a week until the debt is gone.

Sounds harsh? Grow up! When young doctors are interning, an 80-hour week is a slow one. When investment bankers are earning their stripes, 80 hours are a walk in the park. Ditto lawyers who want to make it to partner, and farmers who want to make a profit.

Wait tables, work retail, stuff envelopes. If you need to be home with the kids, find work that will let you earn an extra paycheque right from home. They’re out there.

Start your own business. Do you have a skill that someone else is willing to pay for. Play the guitar or piano? You can teach music. Love to sew? Start an alternations or custom sewing biz. A great academic? Tutor kids.  Speak a second language? Teach conversational Spanish, Chinese or Russian. Or start a translating business. Are you a fabulous touch-typer? Start your own transcription business. Great eye for web design… well you get my drift. Loads of people start a side business only to find that as they follow their passion, more and more of their money comes from doing something they love. From house painting to gardening, people find joy in doing things they love while they make extra moolah.

Rethink your housing. If doesn’t matter if you live in an apartment or a house, rent or own, taking in a tenant or getting a roommate are terrific ways to lower your housing costs so you can plough more money into debt repayment. Exchange students from other countries, kids who are in college or university, friends who are in a similar debt dilemma are all looking for a place to live and your place may be just the ticket. So it’ll be a little cramped for a while. So it’s a pain having a “stranger” in your home. Ya know what, you should have thought about the mess you were making when you went out and charged up a storm. Now your priority has to be to get it paid off. And this is one way to make an extra $400 – $700 a month.

Dead set against living with strangers? Then find a cheaper place to live. Or find a friend or family member you can cotch with while you pay down your debt. How about managing an apartment building for a free apartment? As long as you’re available the required number of daylight hours to deal with building maintenance, this could work for you.

Cash in non-retirement savings to pay off your debt. If you have money in an GIC that is paying you 4% and you have a credit card that’s charging you 18%, cashing in the investment to reduce or pay off the debt will save you gobs of interest. This does not apply to registered assets that would trigger a tax bill. Leave your RRSPs alone.

Adjust your withholding tax. If you usually get a tax refund, you’re paying too much in tax. Fill out Form T1213 (in Canada) or a new W-4 (in the U.S.) and get your tax reduced at source so you have more money to put toward debt repayment each month.

Grab your cash value. If you have a life insurance policy that has some cash value built up, you can borrow that cash value and use it to pay down your high-cost debt. You may have to pay some interest on the loan, but it won’t be a patch on what you’re paying on that department store credit card. Once the debt is gone, pay back the loan from your insurance policy asap because the amount borrowed will reduce your beneficiary’s payout.

Sell your car and take transit, or buy a cheaper car. I meet people who are obsessed with the cars they drive. They have to looook gooood in their cars, so they lay our hundreds of dollars a month for payments, pump premium fuel and pay whopping insurance so that the people they drive by on the road – strangers – will be impressed. Friends and fam won’t be so impressed because they probably know just how deep your hole is, and they’re scratching their heads and wondering what possessed you to go out and get that stupid car. Lose the luxury. Get a putt-putt and get debt free.

People are always claiming to be serious about becoming debt free, and then out they go and drop $3 on a coffee, $30 on a book, $60 on a new pair of shoes. The little things we spend money on may improve our lives for the time it takes to consume them, but they do nothing for our long-term goals. If you’re serious about becoming debt free, you can do it. But you have to have a plan.

Step One. Put Snowballing to Work. List your consumer debts (not your mortgage unless you’ve done a mortgage consolidation for debt) from most expensive to least expensive, noting your interest cost, your total debt and your minimum payment amount. You might have something that looks like this:

1. Buy-now-pay-later         32%            2100             84
2. Department Store CC        28.8%          700             28
3. Department Store CC        28.8%        1200             48
4. Credit Card                       18.9%        3000            120
5. Credit Card                       14.9%          400              16
6. Student loan                     11.6%      13700            548
7. Car loan                            10%         25,000           650
8. Personal Line of credit        9%         15,000           112
9. Second mortgage/Consol   8%         28,000           212
10. Home Buyer’s Plan              0%         18,000           100
11. Family                                 0%            2,800               0

The idea of the list is to prioritize where you’ll make your payments. You’ll start at the top, with your most expensive debt. (I know some people like to start with their smallest debt, but that’s not efficient.) As that’s paid off, you move to your next most expensive, all the while making the minimum payments on everything else so you stay in good standing with your credit history. Each time you move down the list, you’ll snowball. You’ll add the payment you were making to the most expensive debt you’ve just paid off to the next most expensive that you’re about to tackle.

Step Two. Start today. Like eating smart, exercising and everything else in life that takes discipline, the number one cause of Not Doing It is PROCRASTINATION. You have to wait until your next pay period. You have to wait until you know you have some extra money. You have to wait… and wait… and wait… How’s that working for ya? Any closer to being debt free? Nope? Well then Start Today. 

Step Three. Make a budget. If you don’t know where your money is going, you don’t stand a hope in hell of being debt free. You have the tools on this site. Go to the Gail’s Budget Worksheet and make a budget that balances. The amount you put in for debt repayment will equal the total of all your minimum payments.

Step Four. Cut back. Go over your budget with a paring knife and trim out all the non-essentials that are sucking away your money. How much did you come up with? Do it again. Now how much do you have? Do it again. And again. You want that budget to be so tight it squeaks. You’re going to add whatever you’ve squeezed out of your budget to the payment on your most expensive debt. So if you managed to squeeze out another $300 from your budget, you add that $300 to the minimum payment on the first loan on your list.

Step Five. Make a payment. Don’t wait for the due date. If you owe money it’s always due. And the faster you make a payment, the quicker you turn off the interest clock.

Step Six. Every penny counts. Start carrying a notebook around with you, and whenever you save money on something, write it in your notebook. When you get home that night, make a payment of however much you’ve saved that day against the debt that’s at the top of your. Now you’ve put what you saved to good use, as opposed to just spending it on some other crap.

Step Seven. Every penny counts, repeated. Scour your house for all your change. And every time you empty your pockets of change, add it to your change pot. At the end of every month, deposit it to your bank account and then immediately use that money to make a payment against your most expensive debt.

Step Eight. Sell stuff. Have you heard? Less is the new more! Go through your home, room by room, and choose two things you can live without. Have a yard sale, list things on craigslist or eBay, or sell things through a consignment shop. You might not get a lot for whatever you’re selling, but whatever you get is money you won’t have to pay interest on. Apply that money to the debt at the top of your list.

Step Nine. Make More Money. You knew it was only a matter of time before I got here, right? You have no time to waste if you’re in debt. Turn your time into money in whatever ways you can.

Okay, that’s the plan. Now it’s up to you whether you implement it or not. If you choose not to, you can’t whine about being in debt. Nope. You’ve made your bed and now that it’s full of flees, you’ve only the dog in the mirror to blame!

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