Your Money: The Missing Manual

Chapter 4. Defeating Debt

"It gives much more pain to the mind to be in debt, than to do without any article which we may seem to want.”

—Thomas Jefferson

Let’s be honest: There’s no quick and easy way to get out of debt; it takes time and effort. That said, it can be done—and has been done by millions of people just like you.

Before you can begin to destroy debt, you have to understand the basics of cash flow, since cash flow problems were what got you into debt in the first place. After you’ve got that concept under your belt, you can begin to focus on reducing debt. Although there’s just one basic debt-elimination process, you can apply it in a couple of ways. The key is to find the method that works best for you. This chapter explains your options.

The Power of Positive Cash Flow

“The first step to happiness is spending less than you earn,” write Arun Abey and Andrew Ford in How Much is Enough? (Greenleaf, 2009). You’ve probably heard that before, and if you’re in debt, you might think it’s lame advice. But the truth is, spending less than you earn is the key to all personal finance.

When you spend more than you earn, there’s never enough money to go around. You’re always $50 or $100 short of what you need, and you fall further behind every month. You end up spending money you don’t have—using credit cards, taking out loans—which leads to more debt, which puts you deeper in the hole.

You can’t possibly get ahead when you spend like that. The math simply doesn’t work. In order to save ...