So you want to pay off debt, but you have NO clue where to start.
You’re in the right place!
The overwhelm of paying off debt can be enough to stop people before they even start. It’s hard to know you’ve got all this debt out there but not even know where to start with paying it off.
I’m here to help take that overwhelm away. 🙂
First I want to reassure you that you’re making a great decision! Getting serious about paying off your debt is a huge decision that’s going to take a lot of commitment. It’s simply easier to spend your money on what’s right in front of you that you want than deciding to pay it on your debt instead.
But paying off debt has SO many benefits. You’ll…
- Feel less STRESS about your finances
- Stop having so many money fights with your spouse
- Free up money to use for better (and more fun!) things
- Maybe even free up enough money in your budget to allow you to quit your job
That last point is the one I get most excited about. I bet if you took the time to add up how much you’re paying every month in minimum payments, you’d be pretty shocked.
Even if your minimum credit card payments are only $50, if you’re paying on 6 different cards a month, that’s $300 right there in minimums. And some are probably higher than that. Throw in car payments and personal loans and you could easily be looking at over $1,000 a month going towards minimum debt payments.
What could you do with an extra $1,000 a month?
Could you quit your job? Even if your salary is more than that, you may not have to make up your entire salary in order to stay home.
With an extra $1,000 a month, you could invest in your retirement, pay off your house early, save up for some amazing vacations, etc. The sky is truly the limit.
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So now that you know you’re on the right page, here’s how to get started with paying off debt.
1. Add Up Each and Every Debt You Have
You’ve got to start by knowing exactly what numbers you’re working with.
So pull out those credit card statements (or just log on to your online accounts) and see what your balance is right now. Start writing those numbers down on a piece of paper or your favorite notes app.
Think about everything you owe on. Do you have student loans? Write those balances down. Car payments? Look up how much left you owe on them too. Here’s a list to give you a good idea of debts you may need to include:
- Credit card balances (store cards too)
- Student loans
- Vehicle loans
- Personal loans at the bank
- Loans from family or friends
- Cell phones you’re paying out (this is a newer thing the last couple years with the phone companies)
Is there anything I missed? The one thing I haven’t included in this list is your mortgage. While yes, it is debt, you don’t have to include it in your initial debt payoff totals unless you really want to. I don’t want you to see a massive debt number that includes your house and get super discouraged.
2. Total the Numbers and Rearrange
Now that you’ve got everything listed out, take a deep breath and add up your total.
Done? Good! I know it wasn’t fun, but now we can move on to knocking that debt down.
This is the part where you’ll usually hear a few different terms thrown around. There’s pretty much two systems you can use to pay off debt: the debt snowball or the debt avalanche.
The debt snowball method has you list all your debts in order of amount, from smallest to largest.
The debt avalanche method has you list all your debts in order of interest rate, from highest to lowest.
I personally love and use the debt snowball. And here’s why: it’s SO motivating to get some quick traction and knock out some of those smaller debts fast. If you don’t even want to think about it, just pick the debt snowball and move on.
But this is your debt payoff plan, so you have to make the best decision for you. So yes, if it makes more sense to your brain to use the debt avalanche and save the most amount of money as possible, then go for it! It just may take you longer to get those quick wins.
Decide how you’ll attack your debt and list them in the order you’ve chosen.
3. Start Those Extra Payments!
By this point you’ve looked at each of your debts and added them all up. You’ve got them listed out in the order you want to pay each one off. So what next?
It’s time to start actually paying that debt off!
This is where you consult your budget (you do have one of those right? If not, go to this post and get started.) Take a look at any areas you can cut back on and use that money towards debt instead.
An easy place to start? Your eating out budget. Now I LOVE to eat out, but I’ve had to learn to cut back on it drastically because it’s just so expensive. And right now it’s more of a priority to get out of debt than it is to eat out multiple times a week.
That’s just one example. Start slashing your budget and throw any extra money you can find on your debt mountain! It will be SO worth it.
One final note for this step: focus on paying off one debt at a time. Yes, keep making all your minimum payments, but anything extra you pay goes to just one debt until it’s paid off. Then move on to the next one until they’re all gone.
4. Track Your Progress (At Least) Monthly
There are so many fun ways to track your debt payoff progress to keep you motivated! I’ve seen some families build a paper chain with each debt they’ve paid off. Others use pretty coloring pages to color in when they’ve paid off a certain chunk.
I’m a little boring and geek out just by seeing the numbers go down. I list all my debts in Evernote and love to go in and lower those totals each month. And once I’ve paid off a debt, I don’t just erase it. I change the font from red to green and put a big fat zero in front of it so I can see I’m making progress!
Track your numbers as much as makes sense to you. Eventually paying off your debt might feel like a bit of a game, but at first you might find it a little depressing. If that’s the case, don’t look at it more than once a month. Just track your progress and move on.
But if you love to see that debt shrinking, you may have fun tracking your debt payoff each time you make an extra payment!
Once again, this is your plan, so do whatever feels best for you!
You CAN Pay Off Debt.
It won’t be easy. It’s probably going to take a long time. But you CAN pay off your debt. Stay focused, and when you slip up don’t let it stop you. Just keep going, day-by-day, until it’s all gone.
I’m rooting for you. 🙂
Want more resources for paying off debt? Read this book. It’s the one I started with on my debt payoff journey, and it’s a total game changer. I think everyone should have a copy in their home!
I’ve also got a whole category of blog posts about paying off debt. You can find all my posts on debt payoff here.
And finally, just get started. The sooner you get your debt payoff plan together, the sooner you’ll find your way to debt freedom. I’m so excited to be walking this journey with you!