Do you start hyperventilating when you hear the word “debt?” Do you have several digits in your debt amount? Are you getting phone calls from debt collectors to the point where you’ve actually considered changing your phone number? You’re not alone. Here’s how you can start paying off your debt today.
You can do it. Let’s start.
Start Paying Off Debt
The very first step to pay off your debt is also the most difficult: starting to pay off your debt. Here are some things we did to pay off our debt, and how you can do the same.
Stop digging the hole
Admitting you have a debt problem is a great first step to paying off your debt. If you’re doing something that is bad for you – like going deeper and deeper into debt – the first thing you have to do is stop. You can’t continue the trend. That means you have to make a commitment to:
- Not take out any more loans (except for perhaps a reasonable fixed rate mortgage).
- Cut up your credit cards (do this now, please).
- Put yourself in a position to not be tempted to go into debt again.
That last one was pretty important for long term success. Is your income where it should be so that you don’t have to worry about going into debt again? I think you’ll find that once you make the commitment to not go into further debt, you’ll find ways to raise your income.
List your debts smallest to largest
In order to pay off your debts, you’re going to have to take an inventory of the debts that you have. How much are the balances on each? What companies or people do you owe? These are the most important questions to ask.
Don’t worry so much about the interest rate on the debts. While it makes mathematical sense to pay off your debts starting with the higher interest rates, you’ll be more motivated by the quick wins when you pay off your smaller balances first. For more information on this concept, see Dave Ramsey’s 2nd Baby Step.
Make a budget and attack your debt!
Make a budget in order to get your expenses low enough to throw all your extra money at your debt. Remember that using your income in an effective way requires a proper budget. Without it, you’ll be spending money based on what’s in your head; not on paper. And that, my friends, is dangerous. We cannot keep all the complexities of our financial situation in our heads. Put them on paper or in your budgeting software to keep everything in line.
After you have your budget up and running, you’ll know exactly how much money you can allocate to your debt. Attack your smallest debt first while making minimum payments on everything else. When you quickly knock that one out, move on to the next one! Take all the money that you were putting toward the smallest one and allocate that for the next debt!
Soon, you’ll be flying through your debt and blasting it out of the water. Sweet if you ask me.
Maintain Your Debt Free Lifestyle
To maintain your debt free lifestyle, it’s a great idea to start an emergency fund. This way, when you get a very large, gross medical bill in the mail, you can laugh and say to that envelope in your hand, “You thought you’d hurt me. But no, you’re wrong you insanely high medical bill. I laugh at you.”
Then, with all the drama and prestige you can muster, pay it off with your emergency fund. No more going to your credit cards! You shred those credit cards anyway, so good luck with that!
There you have it. Do you have some motivation building up inside of you? Good. Now go start paying off your debt! You’ll live better and enjoy the extra cash flow every month.
What kind of debt are you working on? How long until you pay it off? Meet us in the comments!
Image by alancleaver_2000
! John wrote two articles for the book: "Budgeting for Groceries" and "How Grocery Stores Work."
