If you’re in debt, and have been in debt for a while, it can feel like an everyday part of life. Monthly payments begin to feel normal and you get used to carrying just a little bit of debt from month to month. But there comes a point where most people realize they’ve unconsciously amassed more debt than they can handle—whether it be from a string of emergencies, mindless spending, or sky high education costs. That ordinary debt can start weighing you down and holding you back from making big life plans.
But if you’re feeling weighed down by debt, whether it be $3,000 in credit card debt or $100,000 in student loans, you don’t have to settle for the status quo. With a little planning, motivation, and focus on the future, you can make debt a thing of the past. Use these steps to help you craft a plan to ditch debt for good.
This may sound trivial, but the first thing to do is really forgive yourself for the debt you’ve racked up. We can often be our worst critic and really hard on ourselves for making bad decisions. It’s time for any self-loathing to stop so you can focus fully on changing your situation and paying off your debt. So take a moment to forgive yourself for any past mistakes or bad decisions that have added to your debt and resolve to spend all of your energy moving forward, rather than continuing to look backward at your missteps.
Get clear on what you actually owe.
Most people don’t keep close tabs on what they owe. You may have multiple credit cards or multiple loans and keeping track of what you owe from month to month isn’t exactly an exciting activity. But before you can make a plan to get out of debt, you need to get clear on exactly what you owe. Make a list of each outstanding debt including the total amount owed, the minimum monthly payment amount, and the interest rate. Without knowing this, you won’t be able to create a plan you can stick to.
Write down what your debt free life will look like.
When you’re going through the long process of paying off debt, it can be hard to stay focused. When I was paying off over $100,000 in student loan debt, the end felt so very far away. I was on a payment plan and was content paying the minimum each month, telling myself it was just like any other expense.
A couple of years later I was miserable in my job and badly wanted to start my own consulting business. But with so much debt, leaving a stable paycheck wasn’t something I could do. It was then that I realized paying off the minimum for the next 10 years was keeping me from living the life I wanted. I focused on what getting rid of the debt would mean for my life (a new career), and came up with an aggressive debt repayment plan. Because I focused so clearly on how I wanted to live once I was debt free, it made sticking to my new debt repayment plan even easier. A year later I had paid off enough of my loans that I was able to follow my dream of self-employment.
So what does a debt free life mean for you?
Make your plan:
The saying “if you fail to plan, you plan to fail” is especially relevant when it comes to your money. There’s no right way to plan to get out of debt, but it’s important to create a plan and a budget that you can stick to. Some things you’ll want to consider as you create your plan:
- Eliminate your reliance on credit cards. While credit cards can be useful when they’re used responsibly, they can cause major setbacks in your debt repayment plan. To get you out of the cycle of paying off debt and then racking up another large bill when something goes wrong, include in your plan a way to become less dependent on your credit cards. So first save up a small emergency fund and use that—rather you’re your credit card—when unexpected expenses come up. I also found it helpful to leave my credit cards at home tucked away in the back of a drawer and removed them from all of my favorite online shopping accounts. Making it just a bit harder to use my credit cards made it a lot easier to cut them out of my life.
- Prioritize your debts. When you have multiple credit cards or loans, it can be hard to decide what to pay off first. There are a couple of ways you can approach it: the snowball or the interest rate method. With the snowball method, you list all of your debts, in order from smallest amount outstanding to largest amount outstanding. Prioritize paying off the smallest amount first, and once you have that paid off, move to the next one on your list. The idea is that each time you pay off a balance completely, you gain momentum from the satisfaction of paying something off in full.
With the interest rate method, list all of your debts, in order from largest interest rate to smallest interest rate, regardless of the balance. Then focus on paying off the loan with the highest interest rate first, so you are eliminating the loan that is costing you the most money in interest rate charges each month. Both of these options are valid ways to approach paying your debt – it’s up to you to figure out which approach will help you stay motivated.
- Increase your income. When making your plan, it’s great to find places where you can cut spending from your budget. But what can really make a big impact is finding ways to increase your income. If you’re not able to make more with your current job, things like babysitting, tutoring, or freelance work can help bring in a little extra income on the side. Even just making an extra hundred dollars each month can make a big impact when you’re putting it all towards debt.
Celebrate small wins!
Once you have a plan in place, add joy to it by celebrating small wins. Each time you are able to make an extra payment, bring your debt down to a certain amount, or stop yourself from using your credit card, take the time to celebrate that achievement! It will help motivate you to keep going. Paying off your debt can be a long process, but that doesn’t mean you can’t enjoy the journey.