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Another topic of interest is getting out of debt. Imagine being debt free. The thought of being debt free is something foreign or imaginary to many of us. “Our parents have had debt as long as we can remember and we too will have debt. Hey, a car payment is just a way of life. I mean, you have to have a car - right? How are you going to get to work? If you don’t have a car payment then you can’t have a car.” These are my thoughts through my adolescent years and young adult life. I thought because my friends had it or my parents had it so too would I. All these ridiculous ways put a huge financial strain on me and made it a challenge to successfully reach financial freedom.

These not not a get rich quick schemes but a meat and potatoes kind of post that may motivate some to change an indebting lifestyle.

The following post was written my the Motley Fool staff, March 24, 2008. They do a good job summing it up very quickly however stick around for my commentary at the end.

Imagine being free of debt — no more sleepless nights over mounting credit card balances, no more ball-and-chain of debt feeding your anxieties, and no chance of threats from dreaded collection agencies. You can do it! Here’s the scoop — in one minute flat.

0:60 Resolve to spend less than you make
Make it a habit as fundamental as stopping for red lights. Realize once and for all that if you can’t pay for it today — you can’t afford it.

0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10% — preferably with some tax advantages to boot. In the best case, what you bought with borrowed funds will appreciate in value. Home mortgages and student loans are examples of OK Debt. Automobile loans are on the border: They often satisfy the low-rate piece, but automobiles almost never appreciate in value. Bad Debt is everything else — from your titanium credit card to the 35% loan from Larry’s Kwik Kash.

0:50 Pick a winner
Out of all your cards, pick the one or two major credit cards that feature the lowest annual interest rate. Resolve to use those cards for emergencies only. As for all the other plastic pals in your wallet, remove temptation by taking them out of your wallet. Throw them behind a major appliance, freeze them in a bowl of water, or decoupage them to a shoebox. Do whatever it takes not to use them.  

0:41 Gather the latest bills from all Bad Debt accounts
Line these up on the kitchen table. Find the minimum monthly payment for each account and then add these up to get an overall monthly minimum. Pledge to pay this overall minimum PLUS a hefty additional chunk every month — enough to make a solid dent in the outstanding balance of at least one account.
If you can’t pull this off, you’ll have to make a drastic move to increase your income or lower your expenses. It’s harsh, we know, but it’s also an inescapable fact.

0:34 Pick the highest interest rate account and: Attack!
Next, order the latest bills according to annual interest rate charged. Apply the “hefty additional chunk” (beyond the minimum) to the highest rate account(s). Repeat this process monthly until the last Bad Debt account is paid in full.

0:26 Ask for a lower interest rate
Grab a bill from any account charging you more than 14% interest. Dial the toll-free number on the bill and ask to have your rate reduced — say, to 11%. Tell them that you’d really like to stay with them out of customer loyalty (embellish according to your acting skills), but that you have received offers for much-lower-rate cards. Expect to be made very uncomfortable, but stand firm and remember that, to them, you are both a customer and a profit center. You also stand to save a bundle. The more calls you make, the more persuasive you’ll become.

0:18 Be prudent
Be aggressive in paying down Bad Debt, but don’t get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take away your stuff.)

0:12 Commiserate with others
On our Consumer Credit / Credit Cards discussion board, you’ll find plenty of emotional support and great ideas. Help others celebrate their debt-free “happy dance.”

0:05 Dance, Fool!
You’re done when the Bad Debt is 100% exorcised and you can make remaining OK Debt payments with ease, leaving plenty of budget room for savings.

Let’s go back to the thirty forth (34) second for just a bit. I have looked at it from both sides and I agree with Dave Ramsey that you should pick the smallest debt you have and pay it off first. Dave calls it the snowball effect when you get the smallest debt payed for and then you move than money you were paying on the smallest bill to the money you are already paying on the next to smallest. You snowball up to the largest bill eventually and it exponentially helps you get out of debt much quicker.

OK - Dueling banjos if you will. I am going to put Dave Ramsey’s advise on here as well. Now this is Dave in a nutshell so if you are interested in more please here for his link.

Myth:  I should pay off the debt with the highest interest rate first to get out of debt quickly.
Truth:  You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

The math seems to lean more toward paying the highest interest debts first, but what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.

Debt Snowball Plan
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.

First accumulate $1,000 cash as an emergency fund. Then begin intensely getting rid of all debt (except the house) using my debt snowball plan. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.

Build Momentum
Redo this each time you pay off a debt, so you can see how close you are getting to freedom. Keep the old papers to wallpaper the bathroom in your new debt-free house. The “New Payment” is found by adding all the payments on the debts listed above that item to the payment you are working on, so you have compounding payments which will get you out of debt very quickly.

“Payments Remaining” is the number of payments remaining when you get down the snowball to that item. “Cumulative Payments” is the total payments needed, including the snowball, to pay off that item. In other words, this is your running total for “Payments Remaining.”

Debt Free!
You attack the smallest debt first, still maintaining minimum payments on everything else. Do what is necessary to focus your attention. Keep stepping up to the next larger bill. After the credit debt is taken care of, you are ready for the next Baby Step in your Total Money Makeover.

My wife and I got out of debt a year or two prior to discovering Dave Ramsey. Dave seems like a good Christian man who has a pretty good plan to get you financially where you need to be. While Carrie and I were getting out from under the mountainous debt we did not know we were following Dave’s snowball effect but in essence we were. We picked the smallest debt first and worked our way up to the mortgage. Don’t get me wrong, it was not easy. We ate a lot of beans and soup during that time. We stayed home while our friends were out dining. In the end it was truly worth it to be able to say we are debt free.

If you are in debt and attempting to carve a path to financial freedom, please get a plan and stick to it. Reading the plans on this page is just a starting place. You will have to work hard and do without for quite some time, depending on your circumstances but in the end your sacrifice is worth it.

You can check out both websites mentions in today’s post at:

Motely Fool: http://www.fool.com/personal-finance/credit/60-second-guide-to-getting-out-of-debt.aspx

Dave Ramsey: http://www.daveramsey.com/etc/cms/index.cfm?intContentID=4055