People get in debt for all sorts of reasons. High medical bills, death, divorce, overspending. But, just because you ended up in the land of overwhelming debt doesn’t mean you have to stay there. One of the most enviable destinations in the world is debt-free living.
Unfortunately, getting out of debt isn’t as easy as getting into debt. You can find your way to a debt-free life. It starts with a plan.
Step 1 – Imagine Yourself Debt-Free
All journeys begin with the end – a vision of where you ultimately want to be. Start by imagining yourself debt-free. How would your life be? What kind of decisions would you make about your spending? What other things would you be able to do then, that you can’t do now? How will you enjoy your debt-free life?
Depending on your debt and the money you have available to pay it off, a debt-free life could be a long, hard journey. By fantasizing about a debt-free life, you create a longing that will help drive you toward that destination. When you feel life giving up, that vision of your destination can help keep you going.
Step 2 – Tally the Cost
You price most trips by calculating air fare, hotel stays=, food, cost of attractions, etc. The cost of getting to a debt-free life is based on how much debt you have and the interest you’ll end up paying by the time you pay off your debt. You can figure out the cost of this journey by adding up the debts you owe.
Few people can list all their debts off the top of their heads. If that’s you, don’t worry. There are ways to calculate your total debt.
Start by ordering a copy of your credit report. Your credit report will contain most, if not all the people you owe along with the amount you owe them. Get a free copy of your credit report from annualcreditreport.com.
You can also go through your billing statements and gather your account and payoff information there. If you typically throw away your statements after you’ve paid the bill, start saving up your billing statements as you receive them.
Once you’ve listed all your debts, add them up to figure out the total amount you owe. It might be a scary number, but it’s better to face it now than to run away.
Step 3 – Make a Budget
Having a budget is necessary to paying off your debt. A budget can do two things for you. First, a budget helps control your spending, keeping you from repeating the habits that landed you in debt. With your income and expenses on paper, you can easily see what you can and can’t afford. You can better plan for future expenses and avoid using credit cards and loans to keep you afloat.
Second, a budget helps you figure out how much you can put toward reaching your debt-free goal. At the end of your budget is a number, your net income, that you can put toward debt every month. Net income is what’s left over after all your expenses have been paid. So, you can use all that money to pay off your debt.
Step 4 – Coming Up With Debt Money
The more money you have to put toward your debt, the sooner you can pay it off. You don’t have to rely solely on your net income to pay off debt, you can look for other opportunities to help.
- Sell unwanted/unneeded household items and use the proceeds to help pay off your debt.
- Get a money-making hobby and use the extra income to pay off your debt.
- Use windfalls from income tax refunds, inheritances, bonuses, etc. to make a larger dent in your debt.
Anytime you come across extra money, put it toward your debt to reach your destination faster.
Step 5 – Make a Debt Payoff Plan
You need a written plan to pay off your debt. This plan will include your debts and how much you’re going to pay on them every month. You’ll make the most impact on paying off your debt by picking one account and focusing on paying off that account. Use all your financial fuel to pay off that debt, then, once it’s paid off move on to another one.
Even though you’ll be focusing on one account at a time, it’s important that you continue to make the minimum payment on all your other accounts. That way you avoid late fees and you don’t hurt your credit score.
Step 6 – Watch Out for Roadblocks and Potholes
While your paying off your current debt, do not take on any additional debt. Adding more debt will only prolong your trip, increasing both the time and cost of reaching your destination. As long as you’re in debt repayment mode, avoid new debt. Even after you’ve repaid your debt, you should be smart about which debt you take on.
Don’t let a slip up stop you. If you happen to miss a month of “fueled” payments, just pick back up the next month. The more payments you allow yourself to miss, the easier it will be to fall back into old habits.
Step 7 – Track Your Progress
As you pay off your debts, write down how you’re progressing. Keeping a running tally of your total debt and decrease it every month as you send new payments. Seeing your progress will give you motivation to continue going on your debts.
It may take years to pay off your debt completely, but it’s a goal you can achieve with a good plan, patience, and hard work. Whenever you get discouraged, just think about the debt-free life you’ve envisioned and remember that you’re taking this trip for the good of your future.