Debt is a serious problem. According to a recent Gallup survey, the average American has 3.7 credit cards, with a whopping 71% of us having at least one card. Furthermore, according to a survey by Bankrate.com, a shocking 32% of us say we live paycheck to paycheck and that staying current or getting caught up on bills is our primary financial concern. In uncertain economic times like these, we need a plan, and we need it fast.
Here are a couple of quick reasons why you pay your debt off as quickly as possible.
Increase Your Credit Score
Reducing your balance-to-limit ratio on your credit cards can increase your credit score. Your credit utilization should be no more than 30%, but the lower, the better! Paying off your cards each month is ideal but if you can’t do that, try to make more than the minimum payment.
More Financial Security
Having no debt leads to greater financial security. Monthly payments tie up a good portion of your expendable income. You could be spending the extra money on things you want instead of just stuff you need. You could be saving for college, retirement, or a down payment for a house or car. You could begin building wealth by making smart investments. No amount is too small.
Now that you’ve got ample motivation to eliminate your debt, how are you going to do it?
Get out the paper you wrote. You’re the reasons you want to get out of debt and now add the part about how you’re going to get that accomplished. It’s been proven that if you write down your financial plans and goals, you are more likely to reach them. Let’s get started!
Review Your Budget
Find ANY area you can cut back. I would strip back that budget to what Finance Guru, Dave Ramsey, calls “beans and rice.” You get the idea.
Strip back your budget to the items you have to pay and get the expendables to as little as you can. Cut out and turn off ALL non-essential-to-life things. These would be the “wants” like cable, manicures, dinners out, vacations, etc.
List Your Debts
All of them! It doesn’t matter if it’s a $3 library fee, a $10 loan from your mom, or even a $20,000 car loan; write them down from lowest to highest.
Note: For this exercise, we are only dealing with consumer debt in this article — do not include your mortgage at this point.
Take all of the money you have from stripping back your budget to essentials and start putting it towards your lowest (dollar amount) debt paying the minimum only on the rest.
Paying off your littlest debt first will give you a sense of immediate freedom. Once that debt is paid off, take the increased money you now have and apply it to your next most significant debt. It’s called “snowballing,” and it works well. The snowball gets more extensive as it rolls. In the same way, the more funds that become freed up, the more you will be able to add to the next debt and so on.
Make a Plan
Plan out (on a calendar) how long it will take you to pay off each debt. Build-in little incentives in your budget for each debt paid off (or if you have a lot of debt or will take a long time, celebrate ¼ milestones, or ½ milestones on debts).
It will help you to see progress. Don’t go crazy, though. Only use $10 or $50 (whatever is reasonable) of your snowball debt money to treat your family (maybe dinner, maybe more grocery money, a movie, etc.) when you have hit a goal.
Your family will be sacrificing for some time, so it’s good to reward them for short-term goals to keep the long goal in view.
Look for Extra Money
Find ways to add more money to help your snowball grow so you can pay off your debt sooner. Have a yard sale, get a paper route, or deliver pizza, or start an Etsy shop (don’t spend a lot of money on supplies, etc.) to sell your hobby, or start with a direct sales business for a season (one that doesn’t require considerable investment- do your homework!) or _________.
Figure it out! You can do this!
With dedication, hard work, and sacrifice, you can get out of debt — quickly! And then work a plan to stay that way. If you want to live a life free from the burden and stress of debt, then these tips will help you do just that. Follow them closely, and before you know it, you will be celebrating your accomplishments.
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