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Debt Free Step One: Create Financial Goals

Faced with debt it is tempting to spend sleepless nights aimlessly crunching numbers, as if the right few calculator taps will make that red ink disappear. Sadly we both know that won’t happen…

Faced with debt it is tempting to spend sleepless nights aimlessly crunching numbers, as if the right few calculator taps will make that red ink disappear. Sadly we both know that won’t happen—wading through your bills unnecessarily will only exasperate you, and tomorrow you could end up charging three lattes just to perk up for work. But don’t take debt off your mind just yet; ignoring those bills is another fast way further into the hole.

The first step in my Debt Free in Seven Steps system is resoundingly simple, but could be the most vital factor in determining success:

Step One: Write down why you are in debt, why you want out, and where you want to go financially.

No, this step doesn’t involve a single calculation or even the need to write any ugly numbers defining what you owe. The first part of your plan simply affirms for yourself (and anybody you choose to share it with) that you will get out of debt.

Why write down financial goals?
There are two reasons to do this. First, psychologists agree that a critical key to personal change is visualizing the “changed you” (in this case, becoming debt-free). Personal development gurus fold this principle into the practice of goal-writing, arguing that the simple act of putting your desires in writing has affects your subconscious and increases the chance they will happen. Writing down your intention to become debt-free cements in your mind your wish to get out of debt, which will be important when the temptation to spend pops up.

The second reason for this step is to evaluate why you got into debt. Did unexpected medical bills pile up or did you use credit cards to spend beyond your means? If you had control over the accumulation of your debt, you will need to deal with the cause of the debt before you can hope to get out of it. If you are like me, you may have brought the overspending that got you into debt under control, but certain situations may cause you to lose sight of your goals and spend a few dollars “just this once”. In situations like this your debt free plan should include steps you will take to combat these bad habits.

How to write down your financial goals
Writing this part of your plan is simple. Basically, answer the following questions briefly but honestly. For question five, put in your (semi-realistic) ideal date to be free of debt. No need to calculate anything yet. In fact, be optimistic with this date, and you can adjust it in future steps. Following the questions is an example from my plan.

  1. I am in debt because:
  2. I will now live below my means by:
  3. If I am tempted to overspend I will:
  4. I want to get out of debt because:
  5. I will be out of debt on or before:

Example: My debt free plan
1. I am in debt because I used credit cards to live beyond my means for more than five years.

2. I will now live below my means by budgeting and not buying anything I don’t absolutely need. I will cook instead of eating out whenever possible, and I will work a second job as long as is necessary to pay down my debt.

3. If I am tempted to overspend I will take out my mission statement and remind myself how a few mistakes could defeat my debt-free plan.

4. I want to get out of debt because debt is inhibiting my ability to save for my future, buy a home, and have financial peace of mind. I am tired of wasting hundreds of dollars each month on finance charges alone. I will be wealthier and happier when I am out of debt.

5. I will be out of debt on or before July 31, 2008.

Wrapping up
Now that you have the first part of your debt plan, I suggest printing it on bright paper and posting it somewhere you will see it daily: on the bathroom mirror, a kitchen cabinet, or your dashboard. Also, write your response to question four on a business card and put it in your wallet where your credit cards are or used to be. It should be the first thing you see anytime you open your wallet to spend money!

Go to Step Two
You are now ready to take a look at your bills and figure out what it is going to take financially to break free. Step Two: How Much Debt Do You Have?. Or, see all steps in my Debt Free in Seven Steps system.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.