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I do have personal experience with it, as I just passed the 50% debt payoff mark, but I am not so vain as to tell you guys that I have found the way to get out of debt and my way is the only way!
To successfully get yourself out of debt, I think the opposite is true. You have to find a way to get out of debt on your own, and implement your plan wholeheartedly to make it work. For many people, saving money when getting out of debt is counter-intuitive. If you are not actively investing that money, it’s simply sitting there as cash or earning measly 1% interest, while paying off debt means you are getting rid of a liability with interest rates anywhere from 6% (student loans) to 29.99% (really sub prime credit cards).
So why should you have any money saved when you have debt that is costing you more money? Let’s consider both sides of this issue.
$1,000 Emergencies Happen All the Time
But, let’s consider my case. In the 18 months since I got serious about paying off my debt, I only had one unexpected expense over $1,000. I decided to pay off my car 9 months ahead of schedule because it significantly reduced my monthly bills and improved my debt-to-income ratio. I’ll admit, if I hadn’t set aside that money in savings, it would have been tough to make this move. However, it was not an emergency. It was me making a decision to not let my savings just sit there. I’ve had some situations come up over the past 18 months (including lending someone money), but I was able to manage it within my normal expenses and some scrimping.
You Don’t Want to Have Nothing When You are Finally Debt Free
Am I afraid I am going to right back to my old habits and charge up a storm on my credit cards? No! Because that’s exactly the point, I am not afraid anymore. I have been arm-wrestling myself daily for the past 18 months to get over bad habits and impulsive spending. It’s OK to be nervous about the next step when you are finally consumer debt-free, but it doesn’t mean you have fear. You are strong enough to do what you need to do. I personally think the $1,000 buffer is just a mental pacifier, meant to soothe you into thinking you “have things covered”. But you might not always need it and that money could be better spent elsewhere.
***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6736138697/sizes/l/in/photostream/