How many of you are currently struggling with debt? Maybe it’s from student loans or maybe it’s because of credit cards. Whatever the reason might be, this needs to be the year that debt free living becomes a priority. This needs to be the year that you tell debt goodbye for good.
We can talk about how we want debt free living, but it takes more than just talk. It takes action. Kicking debt out of your life isn’t as hard as you might think. It just takes a solid plan and a lot of dedication.
Look at Melanie from Dear Debt as an example. She paid off $81,000 worth of student loan debt. Did that just happen overnight? Not a chance. Instead, she had a plan in place and she worked hard.
The same goes for Bobby from Millennial Money Man. He successfully paid off $40,000 in student loan debt in just 18 months. How? Because he created a plan and he stuck with it until he made his final two cent payment.
So what do you need to do to begin your journey to debt free living? It’s easy, you need to follow these eight steps.
1. Debt free living starts with a budget
If you haven’t created a budget, this needs to be the first thing you do. Having a budget is one of the easiest ways to have a complete picture of where your money is going each month. It will allow you to make adjustments so you’re always right side up at the end of the month.
There was a time when I tracked our budget with an excel document. It worked for me, but it was time-consuming. You can choose to do it manually if you want, but there are plenty of tools available that will automate the process for you.
Today, I actually have our budget set up in two different places. I’m using Mint.com, but I also use Personal Capital. Personal Capital tracks my investment portfolio but also has a budgeting section.
2. List out all your debts
Now that you have your budget setup, it’s time to get to work.
Frequently I will get emails from readers telling me they are struggling with debt and just can’t seem to find a way out. The first thing I always ask is if they have a plan. Some will, but others don’t. Debt isn’t something you can throw money at and hope it goes away. You need to be somewhat methodical about your approach.
Start by listing out each one of the debts by their interest rate. The highest rate is going to be at the top of your list. Why? Because it’s the debt costing you the most money each month.
Now that you have everything on paper, you have a visual idea of what is ahead of you. You can see which debt you’re going to focus on first, second, and so on down the list.
3. Start setting up an emergency fund
Do you have an emergency fund set up for yourself? If not, it’s time to get a savings account set up with CIT Bank or Capital One 360.
Emergencies are bound to happen to all of us. It might be dental work that insurance won’t cover. Maybe your car decided not to start. By having a rainy day fund, these surprise expenses won’t cause a major blow to your budget.
So how much should you have in your emergency fund? Some people will tell you that you need three to six months worth of expenses. While this is a great long-term goal to have, it’s not reasonable while paying off debt.
Instead, start off small putting away money each month until you have $1,000. This is a good place to start. Once you’ve become debt free you can start adding more money to it.
4. Put your bills on autopilot
We’re all looking for ways to simplify our lives. Automatic payments are one of those ways. Instead of physically making a payment each month on every bill you have, you can set it and forget it.
There are several benefits to automating your life. Not only will you make things much easier for yourself, but you will cut down the risk of having a late payment. The last thing you need while you’re working so hard to pay down debt is a wasteful fee.
5. Downsize your life – temporarily or permanently
The last thing many of us want to do is eliminate the things we enjoy. However, there are times when it’s the best thing to do.
Start by taking a look at the budget you created earlier. Are there things you could do without, even if it’s only while you’re paying off debt?
What about your cable television? Did you know the average price for DirectTV is nearly $101 per month? With alternatives like Sling TV or Netflix, you might cut the cord and never go back.
Also Read: SlingTV Review – Is It Worth $20 Per Month?
Are you spending too much money eating out? The average American will spend $232 per month eating a meal outside of their home. What if you cut this in half? The extra $116 each month could be very beneficial for your debt payoff plan.
6. Transfer your credit card balances
Most of you have probably ditched your credit cards at this point. But you might be surprised to know that a credit card might actually be to your advantage.
If you have several high-interest balances, you can use a balance transfer to move everything to one card. Most balance transfer credit cards will come with an introductory 0% APR offer. This will help you pay down your debt without accruing finance charges along the way.
7. Make more money
You can speed up debt payoff in two different ways. You can cut your spending and you can make more money. Hopefully, you’ve already identified places where you can cut your spending each month. Now it’s time to make more money.
Do you have a hobby that you love? Have you ever considered using it as a way to increase your income? There are so many different side hustles you can do to make extra money. Many of these are things you might not have even realized were options.
Also Read: How to Double Your Salary in Two Years
Maybe you love to write. You could build a portfolio and look for freelance writing gigs. Maybe you love graphic design or building websites. There is a market for each of these skills and you have the opportunity to monetize your abilities.
8. Take baby steps and reward yourself
Paying off debt isn’t easy. There are going to be times when you feel like you can’t do it. However, it can be done, you just need to stay positive and focused.
Some people like Melanie and Bobby have been able to pay off huge sums of debt in a short time period. But this isn’t for everyone and that’s ok. Be aggressive, but go at a pace that makes you feel comfortable.
And just remember, it’s ok to reward yourself for hitting milestones. When you successfully pay off a credit card, treat yourself to something within reason. This will help keep you motivated and wanting to move onto your next debt.
When it’s all said and done, you’ll be enjoying debt free living.
