For a lot of us, the number one thing that can keep us from saving a lot of money is debt. From one payment to several, every bit of money that is already spent, is money that you can't put aside for a rainy day. If you really want your finances in order, then tackling that debt needs to be high on your list of priorities, but where do you start?!
Smallest First - There are so many different views on how to pay off debt out there. In our case, we followed Dave Ramsey and his steps to get debt free and it saved our financial lives. His plan is still working for us now. For us, the way we started paying off debt is that we started paying the smallest debt first. It is very motivating to hit a goal quickly. Being in debt isn't just a financial thing, it is a brain thing, and motivation is a huge thing you need to get out of debt and anything that builds that up is a good thing. Feeling like you can accomplish something keeps you heading towards your goal.
Highest Interest - Also, a lot of times, the smallest debt may be the one with the highest interest as well, so it's a win-win, however, what if it isn't? Maybe in your case, you have a debt that you feel is just growing like crazy because of the interest and having that off your back first would really help you mentally--AND financially. Work on this debt the most and maybe throw a little extra to the smallest debt as well, you may feel a huge relief at the end of both of them!
Snowball Effect - The other step that goes along with paying off each debt is creating an effect of a snowball running down a hill collecting more and more snow until it is huge! Use whatever money you save from a debt paid off to apply to the next debt you have and keep doing this every time until you have a big "snowball" crashing in on your last debt! Technically you aren't using any other money to pay off your debts that you weren't already spending every month and the momentum of getting out of debt will get faster and faster. I mean, you got into debt with the snowball effect and I am sure the debt grew as quickly when you built it up, right? So why can't it work in reverse?!
Find Extra Money - Another thing to consider when you are working on getting out of debt is to use "found" money. First, see in your budget what you can cut back on and apply that money to your debt. Eat out less, eat less expensive meals at home, save on other things you normally just spend money on. In some cases, you may be able to take an extra job to earn a little more money, or have a garage sale once in a while to help pay it down. Once you get in the habit of "finding" that extra dollar here and there and apply it to your debt, you will see just how much quicker those debts disappear.
No New Debt - The last (and most important) thing about getting out of debt is to not add new debt! Don't use those credit cards! Don't buy appliances on debt and work to where you can buy your next car without debt! Getting in the habit of using cash for things is the best habit I have ever picked up! Since we paid off our debts, we haven't added any new credit card debit at all. We do have a house payment, and when we got our cars we had a debt for a year on them, but, that is it. Other than that if we don't have the money, we don't get it plain and simple. I have learned to put aside money for the things I want and I have learned when I have to wait for some of those things I appreciate them more when I do get them or I find out that I really didn't want this or that anyway.
Getting out of debt is no easy task, but, it is a task that you can accomplish if you make a plan and stick to it. Life feels so much better when you aren't bogged down with a bunch of payments and you can choose where you want your hard earned money to go next, instead of knowing it's already gone!
Until Next Time!
Jen Lush--Associate Broker and Recovered Debt Addict