Debt is crushing us. It’s crushing our financial aspirations and it’s crushing our souls. It did both of these things to me for years, until I made the necessary changes to get out and stay out of debt. I’ll share my tips below, the same methods I followed.
Consumer debt is a particularly bad kind of debt because it has such a high interest rate. Debt doesn’t discriminate and we need to make sure we’re staying on top of it. All the time. As soon as you roll a credit card balance over from one month to the next, you’ve got a debt problem.
Let’s talk about breaking free.
You have to be ready to fight if you want to get out of debt. That’s because the factors that caused you to go into debt are probably not going away anytime soon.
Social media, society, your friends and family, comparison, your desire to dress a certain way, your habits of eating out. All of these will try to continue influencing you. I can almost hear them calling; “Spend money on me!”
You’re ready to get out of debt once and for all. You’re ready to get your life and finances in order and move on towards bigger and better things. You’ll need to embrace discomfort. You’ll need to be prepared to make some hard choices.
First, understand your reason for getting out of debt. Ask yourself: Why do you want to get out of debt? Now, write down your answer.
That’s a great reason and definitely worth fighting for! Let’s get organized and ready for the fight.
Start by knowing your credit card account balances and annual percentage rates. Write them down. Then, create a plan to pay off your balance. There are two approaches:
- Debt avalanche: This approach focuses on paying off the card with the highest annual percentage rate first, regardless of the balance.
- Debt snowball: This approach focuses on paying off the smallest balance first, then moving on to the next smallest, regardless of annual percentage rate.
Logically, the debt avalanche makes sense, but it’s not logic that got you into debt. Therefore, I recommend you use the snowball approach because you’ll gain confidence with every balance you pay off and small wins go a long way to help you become debt free. Whichever you choose, continue making the required minimum payments on all your cards.
Next, know your facts.
Your cash flow is your money coming in and going out every month. I often find people have no clue how much they’re spending. Go back over the last three months of your income and expenses. Get your bank statement, credit card statements, and statements of any other methods you spend your money. Look at your recurring expenses and see what you can cut. Are there charges for things you’re not using? Or charges for things you don’t value that much? If yes, cut them. I’m not asking you to take a vow of poverty and cut all the things you love spending money on. I am asking you to question whether or not these things are truly bringing you joy and value. To get out of debt, you’ll need to make some cuts.
Alright, brace yourself. I’m about to invoke one of the most hated words in all of personal finance: Budget.
I resisted budgeting for years and still don’t really like it. In fact, my wife keeps our household budget. Here’s what I know for sure: a budget let’s me know we’re on track to meet our financial goals and objectives. It lets me know if we can afford to go on vacation or invest in things. It’s empowering and essential.
Here’s a link to my favorite budgeting guide, but there are a lot of great tools out there like Tiller Money. Don’t expect yourself to be perfect at budgeting, it’s a skill like that you’ll get better at over time. If you slip up, don’t give up. When getting started, revisit your budget on a monthly basis. As you become more comfortable, you can review it on a bimonthly basis.
Then, stay out of debt.
It may take you a long time to get out of debt, but it will be worth it. Adopt this “debt-free” mindset right away. Think about how you’ll feel when you’re debt free and the peace of mind you’ll have when you’re free from the stress you’re likely feeling today.
Now, think a little more about what your other priorities are beyond your reason for getting out of debt. We all know we’re supposed to set goals, but not enough of us do it. (Here’s a post on how to set goals if you need a refresher.) But the truth is, if we don’t have a great future we’re envisioning, it’s a lot harder to make the tough decisions to get out of debt. So take the time to put pen to paper and to write down your goals.
If you do these things, you’ll be on your way to be free from debt and achieve financial security!
As always, I encourage you to talk with someone about what you’re working to improve. Talk to a friend, coworker, or your favorite cousin. Get info on financial coaching and hop on a call. As always, ask us anything. Enter your question here. We answer all of them.
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You can do this!