Want to get yourself out of debt? It sucks to be in debt, and I know it. By the time I was 21, my credit card debt was $10,000. I remember the exact amount because $10,000 was my credit card limit and it was maxed out. Based on what I made in a month, paying the balance seemed impossible like I’d have to give up my entire social life and everything that brought me joy to have enough money to pay my credit card off. The thought of it was depressing and something I honestly wanted to tuck away and ignore—my Scarlett O’Hara method (“I’ll think about that tomorrow”.)
My Scarlett O approach wasn’t going to work. I needed to make a plan because ignoring my debt wouldn’t make it magically disappear and it won’t for you either. It took a little time to get into debt and it’ll take a little time to get out. Let me give you some ideas to work yourself out of debt.
Before you can make a plan you need to know the situation–how much debt do you have? This may sound silly to some of you but to others, you know what I’m talking about. It may be to the point where you have multiple credit cards and loans that you aren’t exactly sure how much and to whom. I mention in this post about getting a free copy of your credit report. If you’ve forgotten some debts you owe, I assure you they haven’t and it’ll be on your credit report. Use this as an opportunity to get a full picture of your finances.
Next up, know how much free cash flow you’ve got to pay down debt balances. By free cash flow, I mean how much money you have left after you’ve subtracted monthly expenses from your income. This is the number you need to know to go after your debt with a vengeance. Now if you have zero, $200 or even a -$200 in cash flow each month don’t let that number get to you. Right now we’re just identifying where your cash flow stands.
Here is where reducing the money you spend each month comes in. To pay down debt, you need every bit of extra money to throw at it. If you missed my last post on cutting costs, you’ll find info on reducing expenses here. Start finding extra cash by looking at what you’re spending each month and what costs you can cut or eliminate. If you’re single, this will be easier because it’s only you deciding what expenses to reduce and cut. For those of you in relationships, this can be a little trickier. My post next week, Relationships and Money, will break this down more, but for now, communication and compromise are key. Don’t cut off your husband’s NFL Sunday Ticket just in time for football season because you don’t think he needs it. Begin reducing expenses together by listing costs you’re both willing to cut for the greater good of your household business.
Once you’ve increased your monthly free cash and know this dollar amount, then it’s time to make a plan for how to pay off your debt. Each person’s plan and approach will be different. One way is to look at the interest rates of your loans and credit cards and use all extra cash to pay down the highest one first. Also, you could pay down the credit card with the lowest balance first to give you a little momentum. Another way is to pay off your credit card with the highest balance first. Which approach feels best to you?
With each debt you pay off, you’ll free up cash amounting to the minimum payment from the debt you just paid off. For example, if you paid off your Visa that had a minimum payment of $90, now $90 plus the amount of free cash flow you were using to pay down your Visa will be put towards your Target credit card. Just as in creating a budget, it’s important to do what works for you.
When it comes to managing your finances, put your money where your mouth is by cutting or reducing your expenses to get out of debt. I’m not saying you have to start living like a monk, but making sacrifices will help you get out of debt. Cutting out Starbucks doesn’t mean you’ll never again taste their delicious coffee—it’s a temporary situation while you get your money back on track.
Don’t forget to stay positive and focused on your goals. You can do this,–don’t doubt it for a second! Make your plan and start living without debt weighing you down.
I’d love to hear your thoughts on getting out of debt in the comments below.
Lots of appreciation,
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