Most people mired in debt got there by accident. It happens before they realized what was going on. In fact, they really can’t explain exactly how they got in the predicament they know they’re in.

If that’s you, that means one thing. You don’t know how you got in debt in the first place.

That means that even if you could magically wipe away all of your debt today, you’d probably get back in debt in the next six months.

Maybe you’ve already done that or known someone who has. A friend of mine got $25,000 in debt twenty years ago, back when that was enough money to buy three cars. Her family paid off the debt. A year later, she was back in debt, except this time she owed more than $25,000.

She wasn't a bad person. She wasn't stupid. She wasn't even being reckless or irresponsible. She just never knew how the first debt happened, so she never made any changes.

Like it or not, if you don’t really understand how money works, even paying off your debt is not going to help you. And once you know how you got into debt in the first place, you're going to have to change your spending habits or it will happen again.

So what is financial freedom? To me, financial freedom is not this: having everything you want. It is not even this: having the money to buy anything you want. And it certainly isn’t freedom from having to ever think about money again.

Believe it or not, wealthy people think a great deal about money (probably more than you do) and even the wealthy know that you can’t buy everything that you think you want.

Financial freedom is having control of your money. For too many people, money controls them. Having control of your money means that you get to decide what you want to do and decide how to go about doing it. You may not be able to have your 30th birthday party in Paris. But a person with financial freedom knows that she has a certain amount of money (also a certain amount of time and energy) and can decide how she wants to spend them.

Here's an example. A friend of mine decided to quit her job to work part-time at home and take care of her daughter. She has less money today than she did when she was working full time, but she has the life she prefers. She had enough financial freedom to figure out how to make that happen.

I have another friend who decided just the opposite. She decided she wouldn't be happy unless she had enough money to have a killer wardrobe, a hot car, and great place to live. She's also an electronics fan, so she has to have an iPod and all that stuff, too. She works a lot of hours at a corporate job. She's doing very well, but she doesn't have a lot of free time. For her, it's no problem, as long as she has the car, the clothes, and the goodies. That's financial freedom, too!

So how do you step into financial freedom?

The first thing you need to do is to start thinking in terms of what you need versus what you want. Needs are the hardcore stuff. You need food, clothing, and shelter. You need medical help, from time to time, and if you have a regular prescription you need, you need to add that to the list. You probably need a car. And you need utilities (electricity, gas, water).

Most people in debt tend to have a very expanded sense of what they “need.” Here are some things that you might want that you probably don’t need: cable TV, a computer, a second car, vacation, dinner out, a rented DVD, a big-screen TV, carpet cleaning, a cell phone.

Yikes!

But to get out of debt you have to recognize that a lot of things we like to do are just not things we really need to do. You need clothes, but you don’t necessarily “need” a designer handbag. You need transportation to and from work, but you don’t necessarily “need” a new SUV. You have to eat, but you don’t necessarily have to eat out. You probably need to get regular haircuts, but you don't "need" a pedicure (unless your a foot model).

What first frightens people in debt is that they have to start to use credit to pay off the necessities. Suddenly, the light bill is in jeopardy. You borrow against a credit card to get money to pay the rent. You max out a new credit card … just buying gas and groceries.

There is help. Now it isn’t easy. If it was easy, everybody would be financially solvent and sane. But it’s possible.

First of all, look at what you need. You’re going to need to pay rent (or your mortgage), your utilities, and you need food. You probably need a car, so figure car insurance and gas as well as your car payment and possible repairs. You need clothes, but if you’re like most of us, you probably have enough in your closet right now that makes it unlikely you’ll need to rush out tomorrow to buy more stuff.

Now look at your luxuries. Are you eating out? Even eating out at fast food places costs more than eating at home. Are you paying for cable TV? How about an online service at home? Subscriptions? Do you have a housekeeper, a lawn guy, and do you pay to get your car washed? Even the local gas station will charge you more than if you did it yourself. Are you shopping a lot? Do you really need department store clothes? Fancy shoes? Another handbag? Do you get regular facials and a personal trainer? Do you travel a lot on weekends? Do you vacation at resorts and stay in hotels?

We all love our luxuries. That’s why we buy them. That’s why we call them luxuries—we luxuriate in them!

The hard truth of the matter is that you can’t have everything you want. Financial freedom means that you are very particular in terms of your luxuries. You have to choose which ones you want and you have to be willing and able to pay the full price. When you start to really understand what things cost you, you may think again. For example, remember my friend who's working part-time and raising her daughter? She'd love to have a lot of money. She'd love to get new furniture and she misses having a decent car. But she knows what they cost (they would mean going back out into the workforce and not being with her child) and she's willing to let them go.

If you're in debt, you're going to have to slash your luxuries right now. The deeper you cut, the faster you'll get out of debt. It's that simple. You can be financially free in a few years if you're willing to give up cable TV, the lawn guy, and frequent shopping trips now. Some people cut back a little (they drop HBO but keep cable, find a cheaper lawn guy and shop only half as often). That can work, too, but you'll be in debt longer.

If you change your spending habits and learn to live within your means, you very likely will get to a point where you can afford luxuries again, but when you do, you will be smart enough to pick and choose very carefully. You don’t buy everything in the store or sign up for every free service that comes your way.

On the other hand, if you want an expensive pair of running shoes or a very high-end digital camera, if you're financially free, you can decide if it's worth it to spend the money or not. For some people, the answer will be "yes!" But for a lot of others, the answer is, "no!"

Warren Buffet, the billionaire, is reported to live in a fairly modest home. He hasn't traded up in decades. He drives his own car. He doesn't own a yacht or other fancy stuff. He could not only afford a yacht, he could afford to buy the company that builds yachts. But he chooses not to have one? Why? Sometimes freedom is the freedom to say no!

A lot of us get in financial trouble because we feel compelled to say yes and indulge ourselves in everything. If Warren Buffet can live beneath his means, then maybe you can, too.

If you’re way out of balance in debt, you need to look at your luxuries and cut back. Actually, you need to cut them out completely, but that’s a hard first step. Start out by realizing you are going to have to peel back your list of “wants.”

The reason for this is plain: you have to pay for your needs first. If your wants are taking up so much of the budget you can’t pay for your food and rent, you have to ditch the luxuries.

Some people actually resist this step. They don’t want to stop going to the show on Saturday nights (dinner out, movie tickets for two, plus about $20 worth of movie house grub). In fact, the Saturday night show is so absolutely fundamental to their identity that they’d rather die than do without it.

If that’s where you are, get off this website right now. You’re going down the drain. Maybe when you get flushed out the other side, you’ll re-think things. But if going out to eat, having designer clothes, or taking an expensive vacation every few months is crucial to you (and you have to do it on credit), you’re never going to be financially free.

Part of financial freedom is the freedom not to be tied to specific things. Financially free people don’t depend on restaurant meals, theme park vacations, designer labels, jewelry, or spa days to make them feel good. They may decide to do those things—or not—but the decision is based on an intelligent choice (head) and not urgent compulsion (emotions).

If you can’t let go of your little perks, it’s because you’re compulsively bound up to them. You have to let go if you’re going to survive.

There is a story I once heard from India about how to catch monkeys. The recommended method is to place fairly large-sized treats (like big pieces of candy or cookies) in a jar with a very narrow neck. The treats are big enough to fit into the jar, but when the monkey reaches his hand in to take out a treat, he can’t fit his hand holding the treat out of the jar. The reason it’s a trap is that the monkey won’t let go of the treat and the jar makes it hard for him to escape. The monkey catcher just walks up and grabs the monkey, who won't let go of the goodie long enough to escape.

That’s the way many people are with their wants. We hang onto them to the point that we get caught and put into another kind of cage—the cage of debt.

So if you’re willing to let go of the candy long enough to escape to a better financial place, you first need to stop the bleeding. Here are some ideas.

·       Turn off cable TV, online services, or other monthly services that you don’t need. It isn’t hard to pay over $1,000 a year in cable bills (take your monthly payment and multiply it by 12). You need to put that $1,000 to better use. If you can, cancel your cell phone. If you can't, go to the cheapest, bare-bones, basic plan.

·      Stop going out to eat. If you can’t cook, learn how. Dumber people than you can cook. Even if you buy convenience foods, it’s almost always cheaper to eat at home than at a fast food joint, let alone a restaurant. If you want to save more, avoid buying grocery store convenience foods. It’s cheaper to buy your own chicken and roast it or chop up your own celery sticks than buy them prepackaged.

·      Stop paying for entertainment. No more movies, no more DVD rentals, no more CDs, no more tickets to events. Books are free at the library. You can watch TV. If you have too much time on your hands without entertainment, get a part-time job.

·      Stop shopping for a while. Eventually, you will need to replenish your clothing supplies, but you need to set a moratorium on buying new duds, shoes, and other toys until you get your debt figured out. Try to check out some garage sales.

·      Look at what you spend. If you regularly get your hair highlighted in a salon, stop. If you can’t stand your natural hair color, consider replacing the $80 saloon visit with an $8 box of home hair coloring. Unless you’re a model or otherwise depend on your looks for your income, you can dispense with facials, pedicures, manicures, and other beauty treatments.

·        Look at who you pay to do things for you. Maids, housekeepers, babysitters, lawn guys, pool guys, and the like all take a big bite out of your money. Anything you can do yourself will help enormously. Now if you need childcare in order to work, that’s one thing. But look at the lawn service. If you pay $40 a visit and your lawn is trimmed 50 times a year (about once a week), you’re paying $2,000. Would you be willing to mow the lawn for a year in exchange for $2,000?

Once you trim your wants down to basically nothing, you can also work on trimming your needs. Are you getting the best deal for your phone service? Can you save on your electric, gas, and water bills? Check out what you’re paying in insurance; maybe you can get equivalent coverage for less money.

It’s amazing how much money a truly motivated and inspired penny-pincher can turn up. But here’s the secret to financial freedom. Every nickel you recover in this way does not go into your “mad money” to spend on your next whim. Every nickel you find should immediately go to paying down your debt.

That’s right. Turn off your cable TV and give that same money to your credit card. Take the money you used to spend on movie night and pay your student loan off. Every little bit you can scare up should go to pay down the debt!

You may be able to shake free literally hundreds of dollars a month. If you turn around and blow that at the mall, you’ll be in debt forever. But take that money and pay off your debt and you can get out of debt faster. 

People who find financial freedom tend to start to get fanatical about this process. It becomes like a game. They’re always trying to figure out new ways to save a dollar here, ten dollars there, maybe even ten cents somewhere else. Then they pay off their debt with gigantic payments. They start to see the debt go down and guess what? That inspires them even more to cut back and try to make an even larger payment next month.

Once you get the process rolling, you’re ready for debt consolidation. That’s the step where you lump your little loans into one big loan and then arrange to pay off that big loan at the most advantageous payments.

For example, let’s say you owe $40,000 (not counting your mortgage or car note) and it’s spread out over 7 credit cards and one loan from your credit union. You don’t have one gigantic debt, you’ve got 8 little debts. In fact, most of your cards are not even maxed out.  Your payments are made at various interest rates, as high as 22% and as low as 14%.

Debt consolidation means that you arrange to get one loan for $40,000. You use that money to pay off your debts. That’s the end of those 7 credit card debts and your loan from the credit union. You’re free from them.

What you have instead is one debt for $40,000. However, if you negotiate this properly, your one debt is at a great interest rate. Let’s say you are able to get a single unsecured loan at 14%. Not only is life simpler (one bill, one thing to keep track of, one thing to pay off), your total payment is going to be less. Why? Less interest. Previously, you had loans at varying interest rates, mostly above what you’re paying now.

And imagine if you could consolidate your debt to something at 10% or even lower? Yes, that’s possible!

That’s how you get financial freedom. If you don’t dig yourself out, you will only fall back into debt, even if somebody rescues you today. You’ve got to take this step. The only question is: will it be today or next year, when your problem is even worse? And the other question: will you take it yourself, willingly, or will somebody else (collection agency, court judgment, or bankruptcy officer) take it for you?

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