Eliminating Debt
Okay guys. It took a couple of posts but we are finally here. How the heck do you get out of debt.
You are going to follow the exact steps that you took to save for your emergency fund. I could literally copy and paste that post here and retitle it and be done! (Seriously its that easy). Revisit how you decreased expenses and how you increased money coming in. Is there something that you can eliminate from your budget that will free up some money that you can then put directly towards your debt? Can you give up your evenings or weekends to do a part time or seasonal job to increase your income? These are all questions you have to ask yourself. Your plan is just that, YOURS. What may have worked for me may not work well for your life. As long as you have a budget/plan and stick to it, you will be successful. It may take longer to pay off your debt than it did to save up 3 months of living expenses depending on how much debt you have. Many people get discouraged when they calculate it and see it will take months or years to pay off debt, but the months and years are going to pass if you do this or not. In a few months you can be in a totally different place if you change a few things now and make some sacrifices.
Okay, onto getting out of debt. We have to figure out some things first. What type of debt do you have? If credit card debt is on this list this is where I would start. Most credit cards have ridiculously high interest rates and that is why many people choose to get rid of them first. You can go about this two ways, pick the smallest balance and work hard or pick the highest interest rate and work hard. Either way you’re going to have to work hard and make sacrifices to pay them off. Picking the smallest balance first does more for your mental. You quickly begin to see debts being eliminated and it keeps you motivated to keep going. Picking the highest interest rate doesn’t give you the satisfaction of knocking a debt out as quick, but it will save you on interest paid in the long run. There is no right or wrong answer of which way to go about it, that is a personal choice you have to make. If you get discouraged easy, pick tackling the smallest balance first. If you think you can keep yourself motivated and encouraged then I suggest choosing the higher interest rate. Either way you will be throwing everything you can at one specific debt at a time while paying the minimum payments on all others. After you have made your plan, the way you go about reaching your goal is the same.
Here is a "Kayla Tip" regarding credit card debt. I personally love balance transfers. I have done one of these before I ever really got super dedicated to paying off debt in 2017, and it helped a lot with a card that I was just scraping by to pay off every month. If you have a large balance on a credit card that will cost you interest each month because you can not pay that balance off, then you may need to look into a balance transfer. A lot of people don't like them, but if done correctly they can really really help. Say you have a credit card with a 6,000 balance on it and each month it just gains more and more interest because you can only pay the minimum on it. Some credit card companies will allow you to open a new card with them, and transfer this balance for 0% interest for a specific term. So now with this new card you may have 12 months interest free to pay off that 6,000 balance instead of allowing it to sit on the current card with 20+% interest. The pros of this are obviously many months to pay the same amount off, and a huge savings on interest. The cons are you gain a credit inquiry, a new credit card, and most balance transfers come with a small one time fee (normally worth it though when comparing the savings). You also now have a completely empty old credit card and may be tempted to run it back up. This is where dedication and determination come in. If you stay focused you won't do the same things that ran up a 6K balance in the first place. You know yourself better than anyone, you know if this will work for you or not. Just know it is an option!
Lets talk about another type of debt that also needs to go fairly soon. Personal loans. It does not matter why you took this loan out, but now you owe a bank their money back. Personal loans also have high interest rates and I recommend tackling them next. The "how" still remains the same. You will continue this pattern over and over as you tackle each category of debt. Just go one at a time and take small breaks if you need to. The last debt people look at is the mortgage. Many people don't consider a mortgage a "bad debt" and I still have my mortgage remaining as well. I can easily sell my home and not have any debt at all, but why would I do that. I love owning over renting as I am actually paying towards something that is growing and that I can create money from. Normally people that are considering paying their mortgage off do so for true financial reasons, like a nearing retirement (change in income), not just to do it to be able to say they did.
On this journey I recommend that you set short and reachable goals. Don't go too easy on yourself, make them challenging. If you find ways to keep yourself motivated you are more likely to stay on this debt freedom journey. Reward yourself after reaching a part of your goal. Maybe after you pay off your first credit card you can treat yourself with a nice pedicure, or a massage. Maybe after a total amount paid off you can allow yourself a planned out shopping trip. I cringe when I type that but some of you really love shopping, and you don’t have to completely remove or deprive yourself of it completely. Setting boundaries and remembering the bigger picture will help you get through a few months or years with less shopping in order to live a much different life that financial freedom brings.
I hope from this post you can see that there are MANY ways to get out of debt. I am not a financial advisor or accountant, but I am a regular person with a regular career that paid off all of her debt and I really want to make this journey a tad bit easier for someone else. I can help you through money coaching, or you can read my blogs and use my trackers on your own as well. You don’t have to feel overwhelmed, and you CAN do this no matter how many money mistakes you have made in the past. My pieces of advice are all things that through trial and error I have found worked well for me during my journey and continue to work well now that my goals are focused on building wealth. I am so excited to hear all of your success stories, you're going to kill it!
Kayla
