There is an old poem I like called “The Fence or the Ambulance” by Joseph Malins. It tells the story of a town built near a cliff. Many people have fallen off the cliff, so the town has a meeting to decide what to do about the problem. Two solutions are put forth: build a fence at the edge of the cliff or put an ambulance in the valley below.
The ambulance solution wins the day and is put in operation. Those staffing the ambulance are faithful in their duty. They quickly rescue all those that fall and take them to the hospital, but the victims keep coming. The story is a great analogy about the choices we make concerning prevention or treatment.
Looking back almost everything I have written about debt so far falls in the category of prevention. In a free society it is not possible, or even desirable, to fence off access to credit, so I have been trying to do the next best thing and put some warning signs at the top of the cliff. I have written about the importance of avoiding credit card debt, how to buy your next car without taking out a loan, and how to use mortgage and student loan debt wisely so you don’t get yourself in trouble.
Some people have rightly asked “what if we are already in debt? What is the best way to get out?” These are fair questions, and they deserve thoughtful answers. Unfortunately, even with warning signs at the top of the debt cliff, there will always be a need for an ambulance in the valley below.
The First Rule of Debt
It has been said that the first rule of holes is “when you are in one, stop digging.”
Likewise, the first rule of debt is “when you are in debt, stop taking on new debt.” If you are in debt, and want to get out, the first step is to take a stand and state, “from this point forward, no new debt!” Without this step you will be treading water at best.
Of course, this is easier said than done. In his book Anitfragile, Nassim Taleb reminds us that the biggest danger of debt is that it makes us fragile. When we are in debt any new problem or emergency inevitably leads to more debt, which is terribly discouraging.
This is why Dave Ramsey correctly advises that a key step in getting out of debt is establishing a small emergency fund of $1,000. This emergency fund reduces your fragility and gives you a fighting chance of avoiding new debt while you are paying off the old. If you can simply avoid new debt, even if you are only making minimum payments on the old, at least you will be making progress.
Do Something Extra
Randy Pausch was a computer science professor at Carnegie Mellon University. He achieved a degree of fame for the “Last Lecture,” a talk he gave at the university shortly before dying of cancer. The “Last Lecture” was later made into a book.
Pausch was a wise man and the “Last Lecture” contains a great story about what it takes to get out of debt. Pausch tells of how he was dating a lady who had several thousand dollars in credit card debt. This debt really stressed her out, so on Tuesday nights – her only free night of the week – she attended a yoga class to help her manage the stress.
One day Pausch suggested to her that if she got a part-time job on Tuesday nights instead of going to yoga she could pay the debt off in only a few months. Apparently she had never thought of that before. She started waiting tables on Tuesday evenings and fairly quickly paid the debt off and eliminated one of the main sources of stress in her life.
So it is with us. If we want to get out of debt we are going to have to do something different; something extra. We cannot keep doing the same things that got us into debt and expect a different result. We are going to have to do sacrifice something. For Pausch’s friend it was temporarily giving up yoga. What is it for you? What are you willing to sacrifice to get out of debt?