Have you ever heard the expression "behind the eightball"? It means you're at a disadvantage. If you are behind on your monthly bills and have collectors barking at you, you are behind the eightball in terms of starting your total money makeover. Before you begin Baby Step 1 and get your starter emergency fund of $1,000 (which we'll talk about in our next email), get current on your bills.
Being current means you are up to date on all your monthly bills and have balanced your budget. You no longer have too much month left at the end of the money. You have taken care of your obligations and have a firm financial footing. Once you have that, you can get traction and start saving and paying down your debt.
Also, it's a morale boost to know that you are current. You owe people but are making payments on time. You have enough to get through the month. Now it's time to kick it up a notch. You are about to have more than enough, because you are going to save some money, pay off the credit cards, and never allow them or those jerk collectors into your life again.
One of the keys to getting caught up is to stick to the basics. When your belly and your gas tank are full, the mortgage and utilities are paid, and there are clothes in your closet, you've got the basics covered. Most everyone can pay for just food, utilities, rent, clothing and transportation. When you live bare bones like that for a little while, you free up a ton of money to put toward your bills.
Getting caught up usually doesn't take long. If you have a minimum credit card payment of $75 a month and you're three months behind, that's $225. But if you cut the cable for a few months, work out at home instead of paying for a gym membership, and bring your lunch to work as opposed to eating out, can you save up the money to get current? You betcha!
Living small time like that sounds brutal, right? Well, it's not fun, but remember two things. First, it's necessary so you can catch up. Second, the more you sacrifice today, the faster you can get out of debt. It's not forever, and your intensity level determines how long you do it. Work an extra job, sell some stuff, and do whatever you can to free up money to put toward your overdue bills. If you can only send a small amount to each collector who’s after you, then use the pro rata plan.
At this point, you're building serious momentum toward freedom. Hopefully you've signed up for a 7-day free trial at My Total Money Makeover (or even become a member!). You've set some goals, found some good information in the community forums, and plugged in numbers for an initial budget and your debt snowball. The debt snowball tool will help you most once you're current on your bills. That is your roadmap for all debts–never again will you have to guess where your money is going.