Debt is a serious problem. According to a Gallup survey the average American has 3.7 credit cards with a whopping 71% of us having at least one card.
Furthermore, according to a survey by Bankrate.com a shocking 32% of us say we live paycheck to paycheck, and that staying current or getting caught up on bills is our main financial concern.
In uncertain economic times like these, we need a plan and we need it fast.
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Why Should You Pay Off Your Debts?
Here are a couple of quick reasons why you should pay your debt off as quickly as possible.
If these reasons resonate with you, I suggest doing the following exercise. Get out a piece of paper and write down your personal “why”. How would having less debt help you achieve your financial goals?
Increase Your Credit Score
Reducing your balance-to-limit ratio on your credit cards can increase your credit score. Your credit utilization should be no more than 30% but the lower the better!
Paying off your cards each month is ideal.
Related Post: 6 Ways to Check Your Credit Score for Free
More Financial Security
Having no debt leads to greater financial security. Monthly payments tie up a good portion of your expendable income.
You could be spending the extra money on things you want instead of just the things you need. Other options include saving money for college, retirement, or a down payment for a house or car.
Once you have become financially stable you can start
How to Pay Off Debts Quickly
Now that you’ve got ample motivation to get started eliminating your debt how are you going to do it?
Get out the paper where you wrote down the reasons you want to get out of debt and now add the part about how you’re going to get that accomplished.
It’s been proven that if you write down your financial plans and goals you are more likely to reach them. You can get a free financ planner to help you with this process.
Let’s get started!
Review Your Budget
Find ANY area you can cut back. I would strip back that budget to what Finance Guru, Dave Ramsey, calls “beans and rice”. You get the idea?
Strip back your budget to the items you have to
These would be the “wants” like cable, manicures, dinners out, vacations, etc.
Note: A 50/30/20 Budget is a great way to budget by sorting out your Needs, Wants, and Savings.
List Your Debts
It’s time to list your debts. All of them?
Yes, all of them!
It doesn’t matter if it’s a $3 library fee, or a $10 loan from Mom or even a $20,000 car loan. Write them down from lowest to highest.
Note: For the purpose of this exercise we are only dealing with your consumer debt. Do not include your mortgage at this point.
Take all of the money that you have from stripping back your budget to essentials and start putting it towards your lowest (dollar amount) debt paying the minimum only on the rest.
Paying off your littlest debt first will give you a sense of immediate freedom. Once that debt is paid off take the increased money you now have and apply to your next biggest debt.
This method is called “Snowballing” and it works well. The snowball gets bigger as it rolls. In the same way, the more funds that become freed up, the more you will be able to add to the next debt and so on.
Make a Plan
Plan out (on a calendar) how long it will take you to pay off each debt. Build in little incentives in your budget for each debt paid off.
This will help you to see and celebrate progress. Don’t go crazy though. Only use $10, or $50 of your snowball debt money to treat your family.
Some fun options might be dinner, more grocery money, or a movie. The objective is to do something enjoyable when you have hit a goal.
Your family will be sacrificing for a period of time so it’s good to reward them for short-term goals to keep the
Look for Extra Money
Find ways to add more money to help your snowball grow so you can pay off your debt sooner.
Have a yard sale, get a paper route, or deliver pizza, or start an Etsy shop (don’t spend a lot of money on supplies, etc.) to sell your hobby, or start with a direct sales business for a season.
With dedication, hard work, and sacrifice, you can get out of debt- quick! And then work a plan to stay that way.
Related Post: 10 Ways to Make an Extra $1000 a Month
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