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Are you in debt? Struggling to make your minimum payments and wondering how you are ever going to get AHEAD? Do you feel stressed, anxious, angry, or frustrated by your financial situation? Dang, I’ve BEEN THERE.
Flashback a few years, my husband and I were $65K in debt. We owed on our (maxed out) credit cards, on lines of credit (basically bank loans), and student loans…even though neither of us had been in school for yeeears. My anxiety was through the roof, we fought about money on the regular, and when we weren’t fighting about it, we were spending it irresponsibly as fast as we could. It. Sucked.
One day I was having lunch with my girlfriends at work, and someone casually mentioned that she and her husband don’t carry a balance on their credit card. They paid everything off at the end of each month, and the thought of NOT doing that made her super anxious. I sat there, quietly reflecting on MY finances. Oh my god, I hadn’t paid off a balance in over a decade! But if SHE could do it, then why the heck couldn’t I??
Once we decided that living debt-free was more important than ANYTHING else we could spend money on, there was no stopping us. It took us 13 months to pay off that mountain of debt, and it was worth every sacrifice, every Friday night at home, every missed concert or postponed vacation.
The feeling of not owing money to anyone is incredibly liberating. The freedom and PEACE we feel now is actually indescribable. My only regret is that we didn’t make the changes sooner to get out from under the weight of the debt.
If my story sounds like yours, or if these words are ringing true for you at all, PLEASE keep reading.
I KNOW it is hard. I KNOW it is scary. And I KNOW you can do it!
I’m going to share the strategy we used and give you some tips and tricks to get the (snow)ball rolling!
Are you ready? Let’s do this!
The struggle is real. It is incredibly easy to buy all the things on a credit card. New shoes? Visa! New couch? Mastercard! Trip to the Dominican? Whoo-hoo! Charge it!!
But then the end of the month comes, and you don’t have the money to pay off the balance on the card. Those charmers at the credit card companies are there to help you out though, aren’t they! Don’t worry – you only have to pay a tiny amount off this month! $63! I have that, you think to yourself! So you pay the minimum payment and make yourself a promise – you will pay it off NEXT month!
This cycle can go on. And on. And on. Literally forever, or until you hit the upper edges of your credit limit. One day you turn around, and you owe $18000, and your minimum payment is $400 a month, and you have no idea how you will ever pay it all off.
Credit card companies make their money from this cycle. You pay interest on the money you owe, month after month – as long as you can keep making that minimum payment, you can owe them those thousands of dollars forever!
We had a line of credit that basically followed this story. We weren’t USING it, we were paying the minimum payment each month, and it felt like maybe we would make SOME progress on paying it down. But nope! The balance never changed, because we were ONLY paying off the interest each month. So basically just flushing our hard-earned money down the toilet!
Once you decide you are going to get RID of the debt, you have to pay MORE than the minimum. In fact, you have to pay as much as you can on the balance to get rid of it.
Get Out of Debt Fast – Run Faster
Think of it like running a long distance race. Your debts are your opponents, and they are already WAY down the track. They aren’t going to slow down and wait for you to catch up and pass them. You have to run harder and faster. If you want to catch them, pass them in the inside lane, and cross the finish line without them, you have to kick up the intensity and run as FAST AS YOU CAN!
The goal is to attack one debt at a time, starting with the smallest, while still paying minimums on the other debts, and chunk down as much money as you can to get it paid off. Once you get the smallest one paid off, move on to the next lowest, and attack it with the intensity of a gazelle escaping a hungry cheetah on the Serengeti.
Repeat this process until every debt is paid off! Simple as that!
Mind over Math
People who have a strong money game or are really into the math of it all will recommend paying off the debt with the highest interest rate first. This means that you pay the least amount of interest possible. And these folks aren’t wrong!
But you guys? If this was about math, you wouldn’t owe the money in the first place!
The biggest part of getting out of debt is changing your HABITS. That means you need to feel some success right away! We start with the smallest debts so that you can win quickly, and feel the pride and freedom that comes with getting debts paid off, and then let that momentum carry you forward to financial freedom!
Commit to it!
Your first step in this process is committing to it. It’s normal to buy whatever you want, go on trips, finance a new car. Having credit cards and student loans is normal.
Stop being normal!
It’s time to get weird!
Embrace doing things differently from most people you know. Commit to doing a bit of hard work to change. Your. Life. FOREVER!
Make a list
Make a list of ALL of your debts. The money you owe your parents from that time they helped you with your car repairs. Your car loan. Your student loans, bank loans, credit cards.
ANY money you owe someone else, whether it’s a bank or a friend, is a debt. And you committed to NOT being in debt anymore, so they all count.
Here’s an example:
Write them in a list with their balances, and put them in order from smallest to largest. It doesn’t matter what the minimum payment is or what your interest rate is. Remember what I said about this not being a Math problem? Yes, you’d pay slightly less money if you knocked out the highest interest rate debts first. BUT THIS ISN’T ABOUT MATH.
You need to feel the success of a quick win! You need to SEE, for real, that you CAN do this. The pride in achieving the first mini-goal is what starts the momentum going.
Start Paying off the smallest debt
Once you have your list figured out, you are going to go into attack mode on that top debt. Keep rocking your minimum payments on the rest of the debts and then every extra dollar you can find goes onto the smallest debt until it is gone.
Minimum payments on everything else.
As much extra as you can onto Debt #1.
Find as many extra dollars as you can, and pay it onto your smallest debt. You want to pay that debt off as FAST as you can!
So in our example, we would put as much extra on the Visa as we can. The minimum payment might only be $50, but you are going to scrape as much money together as you can and putting it onto the Visa.
Where does the money come from?
This is where you turn to your budget and see where you can cut back and tighten up, to free up as much extra money as you can to pay onto your debt.
Keep putting every extra dollar on there, until that debt is gone. Maybe that only takes you a month. Or three months. How long it takes is so personal and specific to your numbers, I can’t tell you how long it will take. But I CAN tell you that you CAN get it paid off.
When Debt #1 is gone (woot!!), you add the minimum payment from it to the minimum payment on Debt #2. Now the very minimum you are going to pay to Mom moving forward is $150 – the minimum from your Visa, plus the minimum you were already paying Mom.
So your total minimum payment doesn’t change. If you start with a total of $950 of minimum payments, as in the example, then by the time you get down to the bottom of the list, the minimum payment on the student loans each month is $950. Everything else is paid off so you put the FULL minimum payment onto the Student Loan. (And hopefully, a whole lot more too!)
Does that make sense?
Then you are going to keep doing what you did to pay off the first debt. You are going to work overtime, cut back on extra spending, meal plan to save on groceries, cancel your cable – whatever you need to do to free up extra cash to throw at each debt.
Literally, repeat the process the entire way down the list.
The total minimum payment never changes – as you pay off each debt you add that minimum payment to the next debt.
This method of debt repayment is the debt snowball plan. The snowball (minimum payment) starts really small at the top of the hill. But as it rolls, faster and faster, the snowball gets bigger and bigger!
As you feel the unbelievable feeling of paying off each debt, you’ll start to look for even more ways to cut back in order to have more money to pay onto your debts. So the snowball gets bigger and bigger.
By the end of our snowball journey, I was putting over four thousand dollars a MONTH onto my student loan. My minimum payment was $160. It only took a few months to knock that debt off, and I’d been paying it off since 2007!
I hope that after reading this you understand that this process isn’t COMPLICATED; it just takes some commitment and hard work. There’s no magic wand to fix this. Even if you win the lottery…I truly don’t believe that will fix the problem anyways. More about that another time!
For some ways to increase your flash flow or cut your budget to free up extra money to chunk down on those debts, check out these awesome ideas: