Want To Get Out Of Debt? Start Here

Want To Get Out Of Debt? Start Here

Debt.

Everyone seems to have it. It’s almost a familiar friend at this point. Except it’s the kind of friend who borrows your sweater and never gives it back. And then comes over and eats your leftovers without asking. And after borrowing your car for a week, returns it with a dent on the front bumper…AND DOESN’T EVEN MENTION IT!

Yes, debt is a burden and a problem that nearly everyone has to deal with, but sometimes the hardest part of getting yourself out of debt is knowing where to get started.

So I’ve put together a handy guide below to show you how to start your journey to get out of debt, and how to make sure you ACTUALLY GET THERE!

Want To Get Out Of Debt Start Here

Step 1: Make A Commitment To Stop Using Debt

When finally coming to the realization that your debt is stealing your lunch money, the first step you need to take is to make a FIRM COMMITMENT that you will NOT get into any further debt. This may mean cutting up your credit cards (a Dave Ramsey favorite), closing that line of credit, or, yes, even refusing to borrow any more for school. And this can’t be just a “resolution” to “try” and stop using debt. It must be a 100% I WILL ABSOLUTELY NOT EVEN THINK ABOUT USING DEBT commitment.

This may require some financial “sobering up” in how you spend money day to day, but will instantly make getting out of debt a priority. It may hurt more when handing over cash (I recommend Cash Envelopes) and using a debit card, and that’s a GOOD THING!

Step 2: Find All Of Your Debt Details

Though many of you know EXACTLY where your debt is, you may not know all of the details on each of those debts. Use the below table as a reference for all the details you need to know on each debt:

Debt Name Amount Interest Rate Payoff Term
Example 1 $14,000 6% 36 months left
Example 2 $6,000 14% Revolving

Grab all of your debts and list them out like I have shown above. Make sure to total them up so you know how much you will be tackling. The bigger the number, the more fuel to feed the fire, because you are going to KICK THIS DEBT’S BUTT!

And for those who don’t know where all of their debt is, it’s time to put bust out your spyglass and do some investigative work. The quickest way to find all debt tied to your name is to pull your FREE credit report at www.annualcreditreport.com. This website is the ONLY government endorsed site for pulling your credit report. It will pull from all 3 credit bureaus directly, and list out all of your debts and credit inquiries. It will also show anything that has been sent to collections.

Step 3: Make A Game Plan Using The Debt Snowball

Now that you’ve stopped using debt, and have put together a list of all your debt details, it’s time to make a game plan. If you truly want to get out of debt, this is the most critical piece of the process, because this is the plan that you WILL stick to when tackling your debt. There are many ways to tackle debt, and there are many opinions out there, but having done financial coaching and talked with many friends who have paid off debt quickly, the best approach is to use the Debt Snowball method.

Popularized by money guru Dave Ramsey, the debt snowball is a great method for laying out all your debts in a simple plan. You take all listed debts, order them from smallest to largest, top to bottom, and pay them off in that order. That means you pay ONLY THE MINIMUM on ALL other debts while tackling the smallest one at the top of the list. Once that one is paid off, you take all the money that you were funneling toward the first debt, and pile it onto TOP of the minimum payment you were paying for the next smallest debt. Check out the example below:

Debt Name Total Amount Minimum Payment Payoff Power!
Store Credit Card $456 $20 $20 + $200 (Savings per month)
Rewards Credit Card $6,000 $150 $150 + $220 = $370.00
Line of Credit $10,000 $220 $370 + $220 = $590.00
Student Loan $36,000 $320 $590 + $320 = $910.00

In this example, the person can save $200 per month to pay toward debt in addition to the minimum payments. Once the first debt is paid off, the $220 is added to the next debt’s minimum payment, giving them $370 per month of PAYOFF POWER! Like a snowball rolling downhill, the PAYOFF POWER payment gets bigger and bigger as it goes down.

Step 4: Pair The Debt Snowball With A Winning Budget!

As always, a successful financial plan starts with a budget. A budget will take the above plan and put it into action by getting your spending under control and directing your money toward your debt payoff goals instead of disappearing every month.

I recommend checking out the Budgeting Basics series, especially if you’ve tried sticking to a budget and just couldn’t make it work. And for those who have never used a budget for their finances and are finding themselves strapped with a ton of debt and no plan, you can download the budget spreadsheet we use when paying down our debt, and get started today!

No more playing patty cake with your student loans, or ignoring those credit cards bills. It’s time to get out of debt with a PASSION, and it’s starts today!

Comments: Do you have debt? What is your #1 roadblock to getting out of that debt? Would love to hear from you in the comments below!

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Comments

  1. I’ve talked to a lot of folks in debt and Step 1 is huge. That commitment doesn’t seem like it’s a big deal, but psychologically it’s enormous. I find that taking some sort of action, like cutting up your credit cards, can go a long way to solidifying that commitment.
    Jim Wang recently posted..How to Create Your Financial Emergency PlanMy Profile

    • Yup. I tell all my financial coaching clients to start by settings goals, period. I don’t care what the numbers are until you can create a solid goal that you can lean on for motivation.

  2. I agree with Jim, the commitment to getting out of debt is the hardest part for most people. It’s a lot harder to get out of debt (mentally) than most people realize.
    Cat@BudgetBlonde recently posted..5 Ways to Save Money on Holiday ShoppingMy Profile

    • You know this best of all, and look how much you’re rockin’ it now! Dave Ramsey states getting out of debt is 80% mental, I’d say more like 95%. I’ve seen people do AMAZING things once they have their eye on the prize. 🙂

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