I learned a long time ago that the “borrower is slave to the lender”. If you haven’t had debt and can’t relate, then thank the Lord God Almighty. For the rest of us, whether it’s a house, medical debt, student loans, or the cards got out of hand, this statement hits close to home. The truth is, debt keeps you shackled in fear, stress, frustration, and so much more. It keeps you from being fully free to reach for your goals and pursue your dreams. Debt stinks!
The great news is, that no matter how big of a hole you’re in, there is hope. Anyone can get out of debt. Here’s how to start.
Make a Plan
I could say make a budget, but a budget is simply a plan for how you want to spend your money. If you’ve never budgeted before and you just spend money as it comes in, this can feel a bit overwhelming. Trust me, it’ll help you now and in the future. How much money do you have coming in?
How much are your essential bills—those are your housing, food, transportation, clothes, and related expenses? Then list your minimum payments for your debts. Also add in other expenses like internet, subscription services, entertainment budget, etc.
Once you figure out how much you have and how much should be going out each month, you can find out if you have any wiggle room anywhere to pay extra to your debt. Simply making the minimum payments on each means that you’ll spend years and upwards of tens of thousands of dollars to pay everything off. You want to funnel as many dollars as possible into the debt without compromising the essentials.
Make a Debt Payoff Plan
Without a plan in place, you are sure to fail. Make two lists of your debt. In one list, rank them simply from highest amount to lowest amount owed. You might have $50,000 worth of student loans, but $300 you owe to Kohl’s. The second list requires a little research on your part. You want to rank them from highest interest rate to lowest interest rate. Don’t worry about your home loan at first. Thankfully, a house is still a good asset, and most of the time it’ll gain in value over time.
There are two schools of thought on paying off debt. While the math shows that it’s most effective in the long-term to pay on the highest interest rates first, if you have a high balance credit card with a high balance, it’s gonna feel like it takes forever to pay them off. The other school of thought is that debt is more about emotion and you should tackle the lowest balances first regardless of the interest rate. This helps you feel like you’re making progress and keeps you motivated over the long-haul.
I suggest you do a combination of both. If you have some debt you feel like you can pay off in a month or two because they are so small, start there. Then you can spend some time working the higher interest rates. If you feel like you’re losing momentum, go back to paying the minimum payment on those and work a low balance again with the extra until that debt is gone.
If you’re already behind on your debts, strategic consulting may be a better option for getting ahead especially if you have multiple debts in collections. They can help with legal issues, debt relief, consolidation loans, and more.
Getting Back Your Life
I’ve been there. Bills were piling up and I was terrified to lose my job. All the debt was a wave that was just barely being held back. The fact is, a good plan, and learning to be wise with my finances pulled me up. Without debt you are free to give, free to plan fun vacations, free to build your savings and your wealth. You also have more flexibility if you lose your job, and so much more. I know it feels overwhelming but put the right plan in place and you can conquer that debt. Make the plan, take it one day at a time, and don’t be afraid to make adjustments along the way.