Step four might surprise you.

I want you to start an emergency savings account and your goal is to save an initial $1,000.  Yes, you read that right.

Why would I tell you to put money into savings when you’re trying to pay down debt? It’s not like the interest you earn is going to be more than the interest you’re paying, right?

Because, if you don’t have a savings account to fall back on, you’ll be back in debt the next time you’re blindsided by an unexpected repair or medical bill. Life happens. If you don’t have money in the bank, how will you pay for the surprises it brings? With a credit card or a loan? It’s a bad habit, and it’s better to start breaking it now rather than later.

Just like your debt didn’t happen overnight, your emergency savings isn’t going to happen overnight, either.

1. Make a plan to save money from each paycheck.

2. Start small with $5 per week and increase over time.

3. Remember to pay savings first (and automatically) before you pay the bills.

You can put money in savings automatically through your payroll department. If you don’t have a direct deposit service through work, you can set it up with automatic transfers at the bank.

As I said, start small and work your way up.  The ideal goal is to put 10% of your income into savings.  But first, start with the emergency fund so the little emergencies don’t discourage you from your quest of paying down your debt

Next issue: We will actually start paying off your debt – bet you thought we wouldn’t get to this.

In step 3 of Say Bon Voyage to Your Debt, we are going to look at ways to find more money.

One way to “find” money is by plugging the leaks in your spending. You’ll take back that wasted cash and put it where it can do some good. To do this, you need to know where your money is going, and that means tracking your spending.  For more information on how to do this, see Step 2.  We personally do this several times a year, and we are doing this for July along with the group.

You are going to have to make some tough choices by reducing and eliminating expenses.  Here are a few common budget leaks to get you thinking:

• Bring food and beverages from home versus buying out.

• Rent a movie from the library and make homemade popcorn instead spending $20 each at the theater.

• Have a potluck dinner with family and friends instead of splitting the cost of a restaurant bill.

• Institute a “don’t buy” month (you can buy needs but not “wants”).

• Do free activities – in summer there are lots of options.  We attend festivals, and concerts and movies in the park.

• Reduce your bills by eliminating unneeded services (lawn, cable TV, premium channels, etc.)

• Do things yourself versus hiring someone.  Some home projects can be tackled with the help of the internet and your hardware store’s advice.

• Buy used versus new. About 20 years ago we bought our patio set used for $100 (table for six, including cushioned chairs, chaise lounge, and end table).  We are still using this set and have only replaced the cushions.  It would have cost ten times the price if we bought it new.

These are just suggestions. Think about your own lifestyle to find reductions that will work for you.

Another way to find money is to make money.  You don’t have to get a second job, necessarily. Here are some creative ways to increase your income.

• Sell unwanted items for cash. Think tag sale, online sales, free classified ads in a local paper, etc.  People love a good deal! We’ve have sold everything from new toothbrush heads to a car online.

• Earn some extra cash. There are websites that will help you connect with people who need your skills. Do your research before you commit.

• Use your hobbies to earn extra money. Don’t start a business that requires lots of money. Instead, rent out your skills or sell your handiwork. If you’re a gardener, rent yourself as someone who does spring planting or puts the fall plantings to bed. If you’re a scrapbooker, organize other people’s photos. Do you have extra handiwork laying around? Sell it on Etsy.

• Rent out extra space. Do you have extra space in your garage or a spare bedroom? Rent them out. Again, do your research and get references.

Now think about what you can do to earn money. You might be surprised at finding an enjoyable second income that works well for you and your family.

For more information and support, join my free private Facebook group “Say Bon Voyage to Your Debt”. We officially started on July 3, but you can still join to get the individual support and worksheets. Sign up here: www.facebook.com/groups/PayOffYourDebt/. To receive a bonus budget tracker, sign up through my newsletter

In our next issue, we will tackle something unexpected.

The next step to getting out of debt is to face the truth.  Yes it’s scary, but it’s time.

First, gather up your most recent credit card and loan bills.  You are going to compile a list of how much debt you have.  The statements will give you several key pieces of information that I want you to write down:

Now total the columns.

I know this is a big step, and I want you to congratulate yourself for doing it. Once you know the truth, you can take proactive steps to deal with it.

Now, explore options to pay off your debt as fast as possible. You could…

• Pay a higher amount towards the highest interest rate debt while making minimum payments on the other debts. When that’s paid off, move on to the next highest interest rate until you are done.

or…

• Pay a higher amount towards the smallest balance first, so it’s paid off quickly. That will give you a sense of accomplishment and keep the momentum going until all debts are paid off.

But is there another way? What if you could…

• Find a balance transfer to lower or consolidate your debt?  You’d ideally want to find 0% interest for the life of the balance.  Yes, you will incur a balance transfer fee (typically 3%), but you will be saving the difference in the interest rate you’re currently paying.

• Contact your creditors and ask them to lower your interest rate.  You want to do your research first, and be prepared to ask for a supervisor if needed.  An interest rate reduction of any kind will save you money and keep the overall balance lower while you pay the debt down.

For more information and support, join my free private Facebook group “Say Bon Voyage to Your Debt”. We officially start on July 3. To get individual support and worksheets, sign up here: www.facebook.com/groups/PayOffYourDebt/. To receive a bonus budget tracker, sign up through my newsletter

In Step 3, we will discuss ways to find money and change your spending habits.