You want to pay off debt as quickly as possible? But HOW?
First, you need to answer these questions to yourself.
- Do you make a budget every month?
- Do you know how much you receive, spend and save?
- Do you know your debt balance? How much do you pay for each debt every month?
If you do not have a budget, start one today. I am sure it will help you a lot. Use the 50/30/20 budgeting rule if you are a beginner. However, since you have debts, I recommend allocating more money toward debt repayment. You might consider 30% for savings and 20% for wants. All you need is as much cash as possible. Are you ready to cut out entertainment, dining out, and buying things you don’t need to impress others?
Next, you need to stop using credit cards. They create more debt, making it harder to pay off what you owe. Stop taking out unnecessary loans. Do not buy a new luxury car, and don’t even think about it.
Now that you have your monthly budget ready, you need a strategy to pay off your debts. It is also a mental game. It is easier to say “I want to be debt-free” than to actually achieve it. But with a strategy, you can reach the goal you set for yourself.
The Debt Snowball Method
I love love love the Debt Snowball method. As you can tell from the word “snowball”, you can imagine your debts being payoff from the smallest amount to the largest, like a snowball rolling down a hill. You may or may not heard of it, I am here to explain it all to you.
1. List Out All The Debts
Grab a piece of paper and list out all your debts, their balances, interest rates, and minimum monthly payments.
2. Rank Them
Rank them from the smallest balance to the largest, regardless of the interest rate. Your goal is to pay the minimum payment on each debt and put any extra money toward the smallest debt. Pay off the smallest debt as quickly as possible.
3. Pay Off The Debt From The Smallest To The Largest Amount
Once the first debt (which is the smallest debt) is paid off, take the minimum payment and the extra money you were putting toward the first debt and apply them to the second smallest debt. Repeat this process until all your debts are paid off.
When you start this method, it may be hard at first because you’ll need to cut back on some expenses to find extra money to pay off the smallest debt. But it will get easier as you go, because you’ll have more money to put toward your debts.
I also created a spreadsheet to help myself pay off debt using the Debt Snowball method. I found it very useful. I input the amount every time I make a payment, and it helps me track the balance I still need to pay. Looking at the sheet keeps me motivated and excited to make the next month’s payment. If you are interested in using it, you can take a look here.
When you have debt, I know how it feels. Your shoulders feel heavier because you’re not happy with the debts. What if you had an extra $500 saved every month? You could go on vacation, treat yourself to good food occasionally, and enjoy more freedom. Debts do take away your freedom. Are you feeling the same?
The best way to get out of debt is to quit borrowing money.
Dave Ramsey
Imagine waking up one morning and realizing you have no debts and extra money in your pocket. Financial security is important. Everyone, regardless of gender, needs to have money. When you are financially stable, you can leave a job if you’re unhappy with your boss, treat yourself to a good meal when you feel down, and reward yourself when necessary.
Is it suitable for you?
The answer is YES, if you
- like celebrating small victories to stay motivated while paying off debt.
- believe that emotions play an important role in managing both spending and saving, especially when tackling debt.
- are more likely to stick with a plan when you see real progress happening early on.
Conclusion
Debt can create tension that makes you not want to wake up in the morning and prevents you from sleeping comfortably at night. You need to take care of your mental health. Therefore, I strongly believe everyone should get out of bad debt—debts that make you lose more and more money.