Getting out of debt is tough. If you follow the steps in the right order, you can do it! Before you jump in with both feet, there is one more thing you need to do. You need a basic emergency fund. Of course, if you do not yet have your budget in place, go back and do that before you think about setting up your emergency fund.
So, why in the world is an emergency fund more important than getting out of debt? Picture this — You are working hard, you are getting out of debt and BAM!!! ….. the furnace goes on the fritz. Of course, you are in debt, so you go further into debt to pay for it. This is one cycle that you will want to break immediately. Before you can begin to really pay off your debts, you need to be able to pay for emergencies that will come along. And trust me, they will.
That is why it is so important to get $1000 in the bank before you begin working to pay down your debts. That may sound unattainable for so many of you, but you just might surprise yourself how quickly you can do this. It just doesn’t make any sense to pay off debts to have something break and then go back into debt. You really want to be able to cover your emergencies without adding back to the debt you have already worked hard at eliminating. Here are ways to build up an emergency fund:
- Have a yard sale
- Sell items on Craigslist
- Get a part-time job at night
- If your budget has excess, use that to put into savings rather than paying towards debt
- Use your tax refund
We actually did several of these steps ourselves when we began our financial makeover. We sold items on Craigslist, we had a garage sale, we saved our tax refund and we were fortunate enough to have money left over from our budget. It took us a few months, but we did it and it felt great to see that when we put our mind to it – we could accomplish it! We knew right then and there that we could get out of debt!
Of course, it was tough to part with things we had. However, they were just that — things. They weren’t required to make us happy. They were wants and not needs. We realized that it was much more important to have no debt than some of the things we were not really using, lying around the house, collecting dust.
Getting $1000 in the bank may take one person 1 month and another couple 6 months. There is NOT any deadline on achieving this goal. It just needs to be met before you can begin to really work on paying off your debts and move through the rest of the process to becoming debt free.
(I am not a financial advisor and the information listed above is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)