Do you want to know how to pay off debt, so you can finally find financial freedom? Apparently, you aren’t alone in this.
A staggering seventy percent of all American families live in debt. Maybe you are one of them. Chances are if you are reading this, you want that to change. But sometimes it’s hard to know where to begin.
Before my husband and I paid off over $80,000 of our consumer debt, we felt like there was no end in sight for our high monthly payments. Online debt payoff calculators told us it would take decades to pay off our debt. Decades, y’all! Ain’t nobody got time for that.
When we first started our debt free journey, we had no idea how to crawl out of the bottomless pit. The only thing going for us in the beginning was our stubborn tenacity to get ‘er done. But we were determined enough to prove those stinkin’ online calculators wrong.
Maybe you can relate. You are sick and tired of paying so much to debt, never having enough extra to do fun things with your family. Or you feel guilty for running out of money every month.
The amount of emails I get from frustrated readers who are behind on bills and don’t know how to get caught up is absolutely overwhelming. They want to one day say they are debt free but feel like it is a lost cause for them since they are already so far behind.
Hear me when I say this, it is NEVER too late to get started! And it is never impossible to make progress. It might take you longer than you like. A few months might be an unrealistic time frame. But little by little you will make progress.
It took us four years! It might take you seven or eight or ten years. It seems like a long ways away. But don’t get overwhelmed and quit before you start! I promise in seven years when you are almost debt-free you will be so glad you started when you did.
What’s most important is that you know it is possible, you believe in yourself, and you stay motivated as you make baby steps to meet your goals. All you need is a little bit of planning and a whole lot of diligence.
If you are ready to slay the debt dragon once and for all but don’t know where to start, I hope these simple tips help you head in the right direction. You can DO this!
1 – Know how much debt you owe.
Make a list of every debt you have. Gather all of your loan statements. Credit cards, car payments, student loan payments, any personal loans or lines of credit. Tally up the principal amount, and figure out exactly HOW MUCH debt you owe!
This is both the hardest and the best step. It is hard to look at a huge number, knowing you have to dig yourself out of this hole. But don’t be discouraged. Use that huge number as a motivation to stick to your guns more and more each month.
Also, read Dave Ramey’s book The Total Money Makeover. It will give you SO much motivation as you read others’ debt-free stories. Please buy this book right now!! I probably read this book ten times while we paid off our debt. But normal people only need to read it once.
2 – Figure out your income and outgo.
Every month, sit down and write down how much money is coming in and how much money is going out. Obviously some bills are set amounts, like rent or mortgage, most utilities, etc. These numbers don’t change much month to month. But really analyze your other bills to see if anything else can be lowered. Groceries, clothing expenses, eating out.
Whatever you do, you need to bring in more money than you spend, and you should know how much extra money you are willing to put towards debt. Obviously the more you throw at debt, the sooner you will be done with those payments!
You also want some type of budget spreadsheet that will help you stay on top of income and outgo so you know if any payments need to come out before your next payday. My Monthly Budget Worksheet (free to my readers) will help you organize your bills and know exactly where your money is going each month. If you want to keep your finances organized from the start, you can snag your copy in the little box at the bottom of the post.
3 – Get caught up on all late accounts.
Before you make an extra payment towards debt, make sure you are caught up on all late accounts. As soon as all of your bills are current, then and only then are you ready to start strategically paying off debt. A big part of this is staying on top of your finances and monitoring your money by tracking everything you spend. (Which is why those are steps 1 and 2.)
4 – Eliminate all unnecessary expenses to free up even more money.
Lower your outgo, or increase your income, or both. Sounds easy enough. But what if you don’t have much money left over to pay extra towards debt? You have to find a way to make that happen!
Get a part-time job for a few months to get a jump start on your debt payments. Cut out some of the nicer things in life for a season. Are there magazine subscriptions you can cancel? Can you skip a manicure every once in a while or do them at home? Would you be willing to go an extra week or two before cutting your hair? Downsizing your cable package? Lowering your grocery budget? Can you eat out less? JUST FOR A SEASON!
As soon as a few things are paid off, you will have more monthly income freed up. Figure out how to use every dollar wisely. Free up every extra dime you can to put towards debt and get that snowball rolling. Remember, this isn’t for forever! It’s only for a short season.
The more you free up to go towards your debt payoff, the less time it will take. A little bit of sacrifice will go a long way. And one day, it will be so worth it!
5 – Make a plan to pay things off.
When I was paying down my debt, I needed motivation. Quick wins made me stick to my budget because I saw that we were actually making traction. In order to get quick wins, we started a Debt Snowball. If you’ve read anything by the personal finance expert, Dave Ramsey, then you know this is the method he teaches.
With a Debt Snowball, you make a list of your debts. List them from the least amount owed up to the most amount owed, ignoring interest rates. Pay the minimum payments on all bills. Put all of your extra money towards your smallest debt until it is paid off. Then put all that money plus the minimum payment of the next loan until that one is paid off as well.
Others do a Debt Avalanche. They take the idea of putting all of your extra money towards one debt, but in this case, they tackle the debt with the highest interest rate. While I loved the Debt Snowball, my sister is doing the Debt Avalanche. One of her loans has an astronomical interest rate and she has decided to get rid of that loan since economically, it is costing her the most in interest.
Whatever plan you follow for your debt payoff, I would HIGHLY recommend to be focused on one debt until it is gone before working towards paying off another. If you put $50 extra to one credit card, $100 extra to a student loan, and $30 extra on your car payment, you won’t make much traction for a while. But if you take that $180 extra and put it to one debt, you will most likely pay it off within a few months! Focused debt payoff leads to simpler plans, quicker wins, and more motivation.
6 – Stick with the plan. Check in regularly.
The perfect plan on paper will never work if you don’t commit to carrying it out in real life. One way to make sure you follow through is by regularly checking in with your budgeted numbers. Know where every dollar is going, and make sure you check in regularly so you know the status of your finances at all times.
If you are married, I would recommend sitting down with your spouse at least weekly to make sure you are both on the same page about money, and you both know how much is left in your account before the next payday. These regular conversations, if done right, will make you feel like a team. As you pay off your debts together and meet your financial goals together, you can also celebrate together!
Using my Monthly Budget worksheet actually helped in this. When something came up that wasn’t in the budget, it was easy to look back at what we had decided on together. It kept us accountable, and it kept us on the same team.
7 – Reward yourself after small wins to stay motivated.
Your goal is to pay off debt. Break this huge goal up into smaller goals. Celebrate after a set amount paid off, like every $1,000. Or reward yourself as you pay off each loan.
Every time we paid off one of our loans, we made sure to celebrate our small wins. Sometimes we went out to eat to celebrate. Other times we splurged and bought something our family really wanted that wasn’t necessarily in the budget.
Whatever you decide to do, give yourself a big ol’ pat on the back for a job well done. Rewarding yourself after meeting small goals will keep you motivated. Celebrate how far you have come and the progress you are still going to achieve. After you celebrate, put your head down and focus on the next goal. Before you know it, you will celebrate being completely debt free!
Now that you have a step by step plan to get out of debt, I think it is only fair that I warn you. Sometimes, this won’t be fun. It might not be easy all the time. And it will definitely not happen overnight.
You will have to say “no” to some fun things. You might miss out on the finer things in life for a short time. But one day, you will be debt free. You will never owe another creditor ever again.
As someone who spent four years diligently paying off all debt, I can tell you from first hand experience it is sooooo worth it! The only thing we owe money on is our home. This has allowed us to do so many things we weren’t allowed to do while living in debt.
Be intentional with your spending, know where your money is going, and learn to say “no” to things that aren’t in the budget. Before you know it, your debt free journey will pay off. Big time.
**P.S.** If you are looking for free finance printables to help you stay organized, enter your email in the little box at the bottom of this post to get instant access to the Simple Finance Toolkit that is exclusive to my subscribers. You will be given immediate access to a goal setting sheet, the monthly budget sheet I mentioned in this post, a bill tracker, and more. These resources will keep you encouraged, motivated, and organized.