Debt is a form a bondage that makes one an indentured servant. Since the bankruptcy laws have changed making it nearly impossible to receive court relief from overwhelming debt, we must work to repay our creditors before we can be free. Make no mistake about it. When you owe creditors, the money that you work to earn is not yours! As long as you owe someone else, that money belongs to them. While you are standing at the bank teller window, all of your creditors are standing in line behind you waiting for their portion.

In order to obtain freedom from debt, you will need a ten (10) step affirmative action plan. Affirmative action is something one does for him or herself, not something others do for him or her. Take the following actions for yourself and soon you will be debt free:

1. Make a mental commitment to become debt free. Just as bondage always begins in the mind, freedom always begins in the mind as well. If you are not mentally committed to get free, you will never be free.
   
   
2. Look for ways to earn extra income. Almost everyone has knowledge, a gift, talent, or skill that is marketable. I will bet that you do too. Find a product or service that people in your community needs, that is within your ability to provide and motivate them to pay you for it.
   
   
3. Find ways to reduce your regular expenses. You will be surprised how much money you can save on your grocery bill each year by eliminating fast food, junk food, snack food, soft drinks, and cigarettes. Not only will you save by eliminating this expense that only serves to make you fat or ill, but you will be happier, healthier, and sexier.
   
   
4. Eliminate the small bills first. Take the extra money that you earn plus the money that you save and use it attack the debt that you have with the lowest monthly payment. Some financial advisors suggest applying this strategy to the debt with the highest monthly payment first. However, that strategy takes to long for you to see that you are making progress. Doing it the opposite way will show you early progress and motivate you to keep your commitment to continue.
   
   
5. Viciously attack your debt. Once the debt with the lowest payment is paid-off, take the money you would have used to pay that bill and combine it with the payment to attack the debt with the next lowest monthly payment.
   
   
6. Treat all of your bills as if they are one bill. All of the money that you are required to pay each month to pay off all of your bills belong to all of your bills. Do not allow yourself to be tempted to use the extra money you will have after paying off some of your bills to create another bill or to buy some other product that you can do without at this time. Stay committed to paying off all of your bills and retain the mindset that all of the money required to pay off your bills belongs to all of the bills.
   
   
7. Do not be tempted to invest. That is, until you have paid off all of your credit card, revolving, and student loan debts. The so called "experts" will try to convince you that you can not afford to wait until your bills are paid. However, you actually can not afford to invest until your bills are paid. Anyone who is carrying these type of debts have no business buying into investment vehicles. With a very good annual investment return being 12%, you will never beat the 18 to 25% interest that you must pay to carry those debts. The 12% you earn will only position you to finance your debt, not get free from it.
   
   
8. Establish an emergency fund. This fund should be placed in a liquid account such as a money market fund with check writing privileges that pays higher interest than a regular savings. Be sure, however, that you incur no penalties for withdrawal from whatever type you select. The purpose of this account is to handle regular household emergencies, e.g., a car breaks down, a major appliance goes on the fritz, or some other unforeseen emergency. Instead of having to rush out to get a loan, in times like these, you will have some of your own money available to cover the expense. Then, you can pay yourself back, little by little, until the account is back to its normal balance. The amount in an emergency fund should be three (3) times your monthly income. Once your debts are paid, pay into this account until it reaches your target level.
   
   
9. Plan to accumulate wealth. Now that you are free from debt, you can begin to plan a strategy to accumulate wealth. The means by which most people in America built wealth is through home ownership and/or life insurance. A home is a multi-generational asset as is an insurance policy. Both of these vehicles allow one to provide an inheritance for his or her children as well as grandchildren. Before any stocks, bonds, or any other investments are bought we must be sure that our children's futures are secure. A home and insurance policy is the quickest, surest and safest way to do that.
   
   
10. Never buy Whole Life. Unless you can find some reason that I can't think of, never buy a Whole Life insurance policy and never ever tie investments to insurance. The purpose of insurance is to protect your family from the loss of your income while your assets are vulnerable. That is, when they have not yet been paid for. The most economical way to cover that loss is with a high yield low cost Term Life policy. You can get a half million 20 or 30 year Term Life policy for a fraction of what it would cost to purchase Whole Life. Once your assets are paid for, all you will need is burial insurance if your arrangements have not been pre-paid. Your children should pay for a policy on you to protect their inheritance from the IRS. You will be led to purchase Whole Life by insurance agents because that type of policy pays higher commissions. You will be tempted by the "loan" provisions in Whole Life. But, if you borrow, you will have to pay interest to borrow your own money.

Dr. William C. Small is a former licensed New York State Financial Planner and author of "Surprising Secrets of the Fortune 500" and "Money Does Grow on Trees".

© 2006 Dr. William C. Small

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