The current economic and political climate, as well as the projections for the near future, have convinced me of one thing – there has never been a better time to get out of debt and build an emergency reserve of cash. That’s right, the day of debt reckoning has arrived.

Yes, I do say that to alarm you. I think people need to be alarmed. Some people need to take off their rose-colored glasses, remove their political hats, ignore their favorite celebrities, and look at the stark reality we face. Our country is bankrupt. We are at war. We are tearing ourselves apart along the lines of Left vs. Right, and they have both been wrong.

I don’t know what might happen in the next year or two. None of us do. However, I do know this – those who have freed themselves of the burden of debt, built an emergency fund, and made adequate preparations for a worst-case scenario, are those likeliest to succeed – even thrive – in the coming years.

This is where I differ from others in the personal finance realm. I think the number one priority for anyone, particularly those with a family with people depending on them, is to build a six-month emergency fund of liquid cash to cover basic household expenses (food, rent/mortgage, utilities, transportation). I don’t care how much debt you have. I don’t care how much interest you are paying. You have to start building a cash reserve…now.

Why a six month emergency fund? The average unemployed person in America has been looking for work for 39.7 weeks, so we really aren’t even covering that full period of average unemployment, but it’s a start.

Most disability insurance policies have a six-month waiting period. If you get sick, or are injured, and cannot work, it will likely be six months before your disability coverage kicks in.

Why not nine months, or a year? If you are still deep in debt, you must start paying down that balance. Six months of savings is a good point to make the switch from savings to debt repayment. Once completely debt free, I think everyone should have a full 12-month emergency fund.

The Four Pillars of Paying Off Debt

1. Pick a plan, any plan. There are plenty of “get out of debt” plans floating around out there. A couple of my favorites are the debt snowball, made popular by Dave Ramsey, and the Debt Tsunami, which advocates giving an even higher priority to emotions elicited by a particular debt, and using that emotion to prioritize a repayment plan.

Both plans largely ignore interest rates, unless everything else is equal, as a determining factor in which debt should repaid first. I generally agree with this approach, as the emotional “win” from paying off a low-balance debt quickly is more valuable than paying a little more interest on a larger balance.

However, I don’t think completely ignoring interest rates is the perfect solution either. After all, paying down a large credit card debt at 19% interest while making the last nine minimum loan payments on a 3.99% car loan with a smaller balance seems to make a lot of sense, from purely a financial perspective.

On the other hand, paying off that small car loan balance in three months, and freeing up another $400 a month that used to go towards car payments, may provide a quicker win in your own plan. Do what works for you.

2. Keep it simple. Whatever plan you choose, my best advice is to keep it simple. The more elaborate the plan, the less likely you are to stick with it. That’s just human nature.

Ask anyone who has tried (and failed) elaborate diets how successful they were month after month. Chances are, somewhere along the way, they slipped. Not that slipping is necessarily bad – we will all do it, but if we have a simple plan to begin with, it makes it that much easier to get restarted.

3. Stop spending. This one is probably the most obvious, but it also the most difficult. People who spend more than they earn on non-essential items are often trying to fill an emotional void. That was certainly my case. I bought stuff because it made me feel good, because I was bored, and because I was trying to keep up with others who made much more money than I did.

Of course, others are swiping their credit cards because they have no cash, for a variety of reasons – some quite legitimate. This prolonged recession (when will we finally admit this is a depression?) has left many, many people unemployed and under-employed. In fact, a record 44.7 million people are now receiving food stamps.

That means a lot of families out there are having to decide between swiping the credit card, or going without food, gasoline in their cars or paying an electric bill. Chances are, many of these families have already cut most frivolous spending from their budgets. If not, or if you find yourself in debt, but not to the point of having to ask for assistance, I plead with you to radically change your spending habits and start working to pay down debt (after establishing a minimum 6-month emergency fund).

4. Increase your income. Earlier, I mentioned #3 was by far the hardest step. However, in today’s climate increasing your income is a very close second. Many families have been hit by layoffs, with one or both spouses losing their jobs. Self-employed people have seen work dry up, particularly those involved in residential construction and similar industries.

I think we are living through a monumental shift, a turning point. For the last 50-60 years many families made their living by working at a factory, or for a city, or a utility or similar, large institution. They were offered pensions and health benefits after reaching retirement. Their jobs were relatively stable, as was their income.

However, things are changing. Many manufacturing jobs have left, and will likely never return (at least not in our working lifetimes). Politics have made public-funded pensions and benefits an endangered species, and likely a thing of the past. No longer can one count of getting a college degree, finding a job and working there for 30 years until retirement.

New generations will have to be much more adaptable, much more creative in their ability to earn a living. They will have to create a variety of income streams by cultivating a combination of their personal and professional talents and interests.

• White-collar professionals may find themselves building privacy fences and decks on the weekends (or going full-time with a popular blog).
• Teachers may host tutoring workshops after school to earn extra cash.
• Policemen may start landscaping companies to supplement their income.
• Nurses may offer to watch an elderly person in poor health to relieve caregivers.

The possibilities are endless, and in reality, we already see many examples of these types of things happening. The difference is that in the past we looked at people with two careers (or a side hustle) as a bit odd – like they were workaholics or people lacking the ability to pick a career path and stick with it.

Going forward, this will be the norm. And those not looking to diversify their income will be the hardest hit every time there is a downturn.

Get creative. Coordinate a block yard sale with neighbors and split the advertising costs. Build a blog about whatever it is that interests you and write about it. Engage with others online in your area of expertise or fields of interest. Ask your current boss if there are any overtime opportunities. Put in applications for part-time work.

Use every single extra dime you can scrape up to put towards that 6-month emergency fund, and then towards your debt repayment plan.

I’ve never been more convinced that this is the time to get out of debt. And if I’m wrong, and things suddenly turn around and the economy booms, you’ll still be better off without debt and a solid emergency fund.

You will be able to seize opportunities others can’t. You will free up income to make investments others will miss (yes, I’m still bitter about being in debt back in 2008 and missing the many opportunities during the “recovery”).

The bottom line is this…you have to start today.

Ignore the television tonight, sit down with a pad and pen and list your debts. Figure out how long it will take to save six months of basic expenses. List things you can sell to make that happen even faster. Brainstorm ideas for increasing your primary income, and for creating new income streams. Now’s the time.

The last two years of my personal journey to debt freedom something finally clicked. It didn’t matter how I ordered my debts, how many half payments I made, how many times I transferred balances from card to card chasing a lower rate, or how many times I consolidated my credit card balances. The only thing that was going to get me out of debt was boosting my income.

The 70-Hour Workweek

If you don’t do something radical to improve your income, you will be in debt forever. I hate to break that news to those still in debt who spend their nights creating elaborate repayment plans while dropping Netflix memberships to create an extra $15 to throw towards a $37,000 credit card balance. That’s like trying to dip out the ocean with a teaspoon. You obviously need a much bigger spoon.

So how does one go about increasing their income – particularly those already busting their butt 50 hours a week in a full-time job, trying to be a devoted spouse, a parent to their kids and run a household? The answer:  more work.

For a short period of time you need to find more work. Easier said than done, particularly in an economy where unemployment is high and even part-time jobs are scarce. I started my final push to debt freedom in December 2007, so I understand just how bad timing can be. But you can’t use the broader economy as your excuse to staying in debt, limiting your opportunities and stifling your dreams of financial independence.

Exactly what am I saying here? I’m saying you need to work another 20-30 hours a week earning money for the sole purpose of repaying debt. I don’t care what you do (as long as it is legal), but maximize those 20-30 hours to earn as much as possible.

Part-time retail work at minimum wage may not be the answer. Starting your own business may require capital – something you probably don’t have much of if you are in debt. At great risk of sounding like a back-of-the-magazine ad, I highly recommend considering a low-cost opportunity you can do from home. Maybe something related to your full-time gig that doesn’t conflict with your full-time gig.

If you are a teacher, consider tutoring at night and on the weekends. If you are a programmer, consider doing some freelance work. If you like doing yard work, offer to mow lawns for friends and neighbors. And no matter what you decide, start a blog and write about it – landscaping, programming, child care, pet sitting, delivering pizza – all interesting topics that you can develop into an interesting blog if you put your personal touch on it.

I was interested in finance and frugality. I used to work in the financial industry. I also enjoyed writing. It only seemed natural to declare my side hustle writing about finances (after mowing lawns and part-time work wasn’t yielding enough money to make significant dents in our debts).

Idle Hands are Useless at Paying Off Debt

So that’s not quite how the saying goes, but comparing debt to the devil’s workshop was a stretch (then again, maybe not). The point is that while you are sleeping in, watching television, or “just relaxing,” you are essentially wasting time that could be spent developing a second income stream to pay off debt.

I know you work hard, and you have a family, and you deserve a break. You can rest after you are debt free. For now, you need to work.

After starting Frugal Dad, I made a goal to get up every morning at 4:30am to answer emails, comment on other blogs, write new content, research and do anything else I could do to help build my blog before heading off to my full-time job. Those three hours each weekday morning were some of the most productive times of my life. I was completely focused on my mission.

On lunch breaks, I carried a memo pad and pen and brainstormed ideas for topics. At night, after the kids were in bed, I set things up for the next day, reviewed daily statistics, etc. On the weekend, I carved out a few hours dedicated to trying to get ahead for the next week. I banked a couple posts, cleared my inbox and read 20 other blogs in the personal finance niche to stay current.

It wasn’t easy. My first month blogging I earned $33.88 – that’s only a fraction more than a dollar a day. But I pushed ahead. In six months, I had earned a total of $4,600 (after taxes) to go towards debt repayment. Now I was getting somewhere.

I stayed at it for two more years from that point, and my family just recently celebrated debt freedom. I can’t say it was easy. There were a couple times I wanted to quit. There were many setbacks. There were more than a couple times we were tested with a medical emergency, or something breaking, but we just refused to stop until we got back to zero.

Snowballs, Interest Rates and Spending are Still Important

The order you pay back your debts with the money you earn from your 70-hour workweek is still important. And of course, if you don’t reduce, or at least hold firm, your spending, you will simply spend all this new money and remain in debt (I like to describe this as running faster on the treadmill while someone increases the speed – you’ll sweat a lot harder, but get nowhere).

There are risks associated with working a 70-hour workweek. It puts a strain on your physical health. Relationships may be strained as well. Your social aptitude will suffer. You won’t have a clue who won American Idol, that Lost is finally over, or who’s playing in the Superbowl. It’s alright; you can catch up later and you can always use an pay off our mortgage early, though not quite as hard). We own our cars free and clear. We have an emergency fund for the first time in our lives. We are beginning to learn about investing and savings products that we could never afford. And most importantly, we have options.

Debt has a way of trapping you – in bad jobs, in bad relationships, in bad locations. It’s a suffocating financial cancer that eats away at your future dollars, and your current enjoyment. It adds immeasurable risk to your life. It is not to be ignored for another moment.

You simply cannot win, financially, while you keep debt around. Draw a line in the sand today – no more new debt…ever. Make a plan to boost your income. Make a plan to reduce your expenses. Throw every single extra dollar that comes into your life towards that debt. You aren’t throwing it away, you are investing it in your financial future.

1. Get angry

We go out of our way to repress anger in our society, but anger is a perfectly normal human emotion. An emotion that when harnessed properly can lead to powerful changes.

Find a way to personalize debt, and then get mad as hell at it. I hate debt for a lot of reasons, but a big one for me was the fact that debt limited my opportunities, and those of my family. My kids have missed out on opportunities to make lasting memories because we’ve had to skip family vacations. I had to stick it out in a soul-sucking career because we were too in the hole to consider moving. I spent many weekends mowing lawns a couple summers ago trying to generate extra income to pay down debt, all the while missing my family dearly.

At some point I said enough. I went from being indifferent, to depressed, to downright mad. That debt was not going to beat me. I would no longer ignore it while it festered, eating away at my future income and robbing my family of opportunity.

2. Stop spending money, cold turkey

When deep in debt you don’t have the luxury of saying things like, “I’ll try to spend less next month.” No, you WILL spend less next month. With the zeal of a heart attack survivor starting a new diet, prioritize your household expenses. Anything not contributing to food, shelter, transportation, health and basic clothing gets cut. Period. No excuses.

• Drop the cable
• Cancel home phone
• Cut out the gym membership
• Get rid of the yard service, the exterminator, and Netflix
• Turn up the thermostat
• Brown bag lunch
• Have a no-spend weekend
• Ride your bike to work
• Eat rice and beans

Get drastic. Get creative. The deeper you can cut spending the more money you can direct towards paying off debt. And the more money you can throw at debt the faster it gets out of your life.

3. Eliminate opportunities to go back into debt

Got a problem with credit cards? Cut them up. Order too much crap online? Erase all profiles storing order information and destroy anything with a credit card number on it. Have a thing for cars? Sell the one you owe $20,000 on, and buy a $1,500 piece of junk to get back and forth to work. You’ll discover true friends couldn’t care less what you drive.

Have trouble in stores? Stay out of them. Shop every other week as much as possible, and only enter the store with a physical list of things to buy. Exit store with only things from that list. No excuses. It doesn’t matter what’s on sale, what’s on clearance, and what you just “have to have!”

4. Focus income towards your debt like sunlight through a magnifying glass.

I recall from my youth that light from the sun when filtered through the lens of a magnifying glass and focused on a particular spot is strong enough to ignite a flame. That’s exactly how you should approach paying off debt.

Focus as much of your income as possible on the next debt in your snowball. That debt should be sweating like a guilty criminal under the bright lights of an interrogator. Work overtime, pick up a second job, start a side hustle. Do whatever it takes to get your income up and direct all additional income towards repaying your debt.

5. Do not backslide, do no retreat, do not give up.

At times, following through on your financial goals will seem like an uphill battle. For instance, sustaining momentum when paying off debt is very difficult. Quick wins give way to long battles with high-balance debt, and it might seem like you are getting no where fast. However, as long as you are making progress, keep chopping away.

Another danger presents when things start to go well. Complacency begins to creep in. You have paid off 75% of your debt, increased your income, and decreased your spending. Suddenly that $1,500 a month you are sending to pay off student loans starts to look pretty good on a television, or on that vacation you skipped the last two summers.

This is a dangerous place to be, because the more comfortable you feel, the more risk there is you will give up and live with that remaining 25% of debt for the rest of your life. Keep your head down, your legs driving and sprint all the way through the finish line. And no matter what, do not quit until all balances reach zero.

Q: If you have a canceled credit card and its balance is the lowest should you work on paying that one off first or one that isn’t canceled? Also, would you work on paying over the credit limit cards or paying off payday loans first?  We have ideas but just aren’t sure where to start and attempt to tackle the debt.

A: Stacy, there are about as many ways of paying off debt as their blogs dedicated to the subject!  First of all, I commend you for taking control of your financial situation and eliminating the temptation to go even deeper into debt.

The usual advice is to wait until your card is paid off to close it, because it can be detrimental to your FICO score to reduce the amount of credit available. Having said that, I’ve violated this advice myself and closed an account before paying if off because of the way the credit card company treated me.

From your question, it sounds like you have a variety of debts including a canceled credit card, an over-the-limit credit card or two, and some payday loans. The standard advice is to pay off the debts in the order of the interest rate – paying off those with the highest rates first. In my own experience, I have found that method of snowballing debt to be tougher to work through because of the lack of emotional reward returned.

However, if you go this route, move your balances after considering the 18 month promotional balance transfer offer from Discover® More Card.

I recently linked to an article over at Man vs. Debt about the Debt Tsunami method of paying off debt.  According to this debt snowball style you line up the debts giving priority to the one that is most emotionally charged. or gives you the biggest emotional boost when paid off. In your example, that might be the payday loans, or a personal loan that you’d like to clear from your list of debts. For me, it was my car loan, because since marrying my wife eleven years ago I’ve never known freedom from a car payment.

The other thing to consider is the fees associated with the over limit credit cards. Perhaps it makes sense to prioritize those first until the point that they are all safely under the credit limit and current. Then you can regroup and reorder your debts in the priority that works best for your situation.

Finally, there is no easy way out of debt. For me, the climb out of debt has taken more dedication, more perseverance, and more sacrifice than anything in my life up to this point. However, the rewards at the end are just as sweet. I suspect because you took the time ask for help with lining up your debts that you also have a gameplan for paying them off, and I have little doubt that you can do it. Let us hear from you again when you are debt free!

My wife and I attended one of his live events a few years ago, and I credit it with finally getting her on board with out financial turnaround. Last week I reread The Total Money Makeover for the first time in a long time, and have provided a detailed review below.

Chapters 1-5: Debunking Financial Myths

In Denial. The number one reason people refuse to change is because the refuse to accept they are in trouble to begin with. Even those with just a small amount of debt refuse to accept they are in debt and work to kill off what they owe. Instead, they just kind of wander along through life with no goals of ever improving their financial lives.

Debt Myths. Thanks to a billion dollar banking and credit industry we have been sold on the idea that debt is normal. “Everyone has to have a car payment” and “you can’t buy a house without a mortgage” are commonly accepted ideas regarding debt. It’s Dave Ramsey’s assertion that we don’t have to live with debt, we simply need to deny ourselves life’s latest toys and save for those that we do want to buy. The bumper sticker on my old truck best sums up this section of the book: “Debt is normal. Be weird.”

Money Myths. This section reminds me of the old phrase, “Money is not the root of all evil, the love of money is the root of all evil.” In other words, money is not the answer to all life’s problems, but it can make life easier if we use it wisely.

Financial Ignorance. Our public education system has done a particularly poor job of giving our youth a solid financial footing before setting them out in the real world. Unless these kids have financially-savvy parents they grow up ignorant on how to manage their finances. I was in this category – though I wouldn’t call myself ignorant, just confused. I sort of floundered throughout my 20′s when I could have been building a fabulous foundation for my family.

Got to Keep Up With the Joneses. Financial peer pressure is a net worth killer. We spend more time, money and energy trying to keep up with others than we do appreciating what we have. This is particularly true of young people. As you get older, you start to develop an “I don’t really care what other people think” attitude. This is the attitude that sets you free, financially. Quit trying to keep up with the Joneses – they’re broke, too!

Remaining Chapters: The Baby Steps

The remainder of The Total Money Makeover outlines Dave Ramsey’s plan for making over your finances in seven “baby steps.” The “baby steps” theme comes from that old Bill Murray movie, What About Bob. Remember, his therapist (Richard Dreyfus) convinces him to take “baby steps” to break through his paralyzing fear of the world. Ramsey’s baby steps start with saving a beginner emergency fund and end with investing for wealth. Here’s more on the baby steps:

1. Save $1,000 in a Beginner Emergency Fund. Until you put some separation between you and the financial cliff you’ve been dangling over the last several years you will never succeed, financially. $1,000 isn’t a lot of money these days, but it is enough to cover most car repairs and replace broken appliances. This baby emergency fund should be kept ultra-liquid, and easily accessible. A good place to start is at your local bank account or credit union. Do not “invest” this money; this fund is for emergencies only.
2. Develop a Debt Snowball. Forgetting interest rates and annual fees for a moment, Ramsey advocates lining up your debts smallest to largest. Make minimum payments on all the debts, and attack the little one with every extra dollar you can squeeze from your budget. When that smallest debt is paid off move on to the next one, combining that debt’s minimum payment with the amount you were paying on the first debt, plus any extra you can squeeze from the monthly budget. In this way, each time you move up a debt your “snowball” gets larger and larger. By the end of the your debt snowball plan you could be making monthly payment well in excess of $1,000 a month towards a car payment or large credit card balance.
3. Save 3-6 Months of Expenses in an Emergency Fund. Now it’s time to beef up the emergency fund you started in Baby Step 1. Calculate 3-6 months of expenses (not income) and use that as your savings goal. If you are single, or married with only one income, lean towards the 6-month figure. For most families their goal amount should be around $10,000 in a high-yielding savings account. *Note, step 3b is to begin saving for a large purchase, such as a down payment for a home or to upgrade a car with cash. This should only be started after you have a fully-funded emergency fund in place.
4. Save 15% of Your Income for Retirement. If you suspended retirement contributions to get to this point, now is the time to restart those contributions. If you have an employer-sponsored plan such as a 401k that offers a match, invest up to the matching percentage, but no further. Any amount above that, up to 15% of your income, save in a Roth IRA.
5. Save for the Kid’s College. It’s important to note that this step comes after saving for your own retirement. Many parents, with good intentions, put saving for their kids’ college funds ahead of their own financial goals. This is a bad idea. They don’t offer grants or work-study programs to pay for your retirement. If you are without savings for college, there are alternative ways to fund an education. Ramsey sort of hedges here – citing that kids tend to get more out of their education if they pay for it themselves. Then again, he confesses that it is a noble goal to pay for your kid’s education. Since I personally took the student loan route, and lived to regret it, I will try to find a way to cover most of my children’s education expenses. Part time jobs aren’t all bad though, and if they develop an expensive taste for clothes or toys in college they can get a job and pay for those themselves.
6. Pay Off Your Mortgage Early. This is one of the most controversial steps because most financial experts will tell you that money spent reducing a mortgage could earn you a much better rate in the market. Maybe, but Dave Ramsey isn’t all about math. His specialty is personal finance. Without a mortgage payment, and no other debts, you can become very wealthy, very fast. Paying off all debt, including mortgages, eliminates a large amount of risk from our lives. If you are thinking of buying a house consider a 100% down plan – paying for the entire purchase with cash. If you must finance the deal, consider a 15-year, fixed rate mortgage and then work to pay it off even earlier.
7. Invest for Wealth. The final step in your total money makeover is to invest all remaining income for wealth. Without any debt payments, a large percentage of your income (your best wealth-building tool) can be invested above retirement account savings.

As I mentioned in the introduction, I credit this book with really getting my financial life turned around. I’m one of those people who loves to do things in steps. I attack many problems this way, and developing a game plan around The Total Money Makeover’s baby steps is a great way to turn around your finances. I highly recommend this book as one of my top three favorite financial books of all time.

The “Scared Straight” Snowball Debt Reduction Plan

Basically, the plan is to make minimum payments on all your debt and pile your remaining get-out-of-debt money into a high-yielding savings account such as the one offered by Smarty Pig. When the balance in that savings account exceeds the balance of your smallest debt by 30%, the snowball plan calls for you to transfer the money into checking and eliminate that smallest debt.

As Trent points out this is probably not the smartest (mathematically) way to approach the debt snowball, but for those of us with somewhat shaky jobs, or in one-income families, it makes for a better night’s sleep to have a few thousand in savings at any given time. I’d gladly give up a couple months worth of interest to have a pile of money in the bank at the ready.

I may make one slight variation to his plan and preserve a $1,000 savings threshold – so when my savings balance equals my smallest debt, plus $1,000, I will bring the savings balance down to $1,000 and pay off the debt. Another idea to consider if you have several smaller debts (like I did in the beginning) would be to group those debts together to make one larger debt.

For instance, I had three debts under $500. If I was using the “Scared Straight” plan back then I would have grouped them into one $1,300 debt and used that as my target savings amount, otherwise you’ll be making several transfers out of your high-yield savings account to pay down the debt snowball, and it could cause a fee to be assessed on your savings account.

The Original Debt Snowball Plan

The original debt snowball plan was made popular by Dave Ramsey in one of my favorite personal finance books and New York Times bestseller, The Total Money Makeover. If you haven’t read the book, I highly recommend it (here’s a link to my review of The Total Money Makeover).