Paying Off The Debt - PART 5 - Swimming In Debt

I am going to stress it again because it is so so important before starting this step. ONLY start this step after you have written down your goals, created a budget plus you’re using it, and you have your rainy day fund complete. If you have not finished one of those steps turn around and go back. Do not start paying extra to your debt until you have done these, believe me it will only help you! But you are more than welcome to read what is to come!

Now I want you to think of something, if you didn’t have a car payment, credit card debt, student loans, medical bills, or even a mortgage payment; how much money would you have? Are you saying a lot? You could become wealthy if you could get out of debt. I want you to remember that feeling you just had when you thought of your life without debt payments. Now let’s make waves and do just that!

This step will require the most effort and most sacrifices. But if you really believe that you could be wealthy without any debt payments, you should be willing to do some crazy things to get there. Let’s pay off the debt!

WRITE DOWN YOUR DEBTS!

First you need to write down all your debts (except your mortgage), all of them! If you have a loan from a family member, medical bills, or something without interest; write it down. To help you out I have created a Debt Form Printable. Please note you need to be an email subscriber to access all the files in this post.

Here is what the PDF looks like.

HOMEWORK: Fill out the form by listing all your debts except your home. This will help you soon!

HOW TO PAY OFF DEBT (THE METHOD)?

There are many ways to pay off debt and the one I have heard the most is called “Debt Snowball”. And I really like the idea behind it. The idea is that you pay the minimum payment to stay current with all your debts. Then every dollar you have extra in the budget goes toward one debt until it’s paid off. Then you move to the next debt and pay the extra plus the minimum payment from the last debt, until that debt is paid off too.

The cycle keeps going until all the debts are paid. It’s like a snowball, hence the name. Every time a snowball rolls in the snow; it picks up more and more snow, getting bigger and bigger as it moves along. This is what your debt payment does; it gets bigger and bigger as you pay off each debt. This is the method you will use to pay off your debt.

WHAT DEBT TO PAY FIRST?

This is a question I had and I am pretty sure you do too. Do I pay the lowest amount first, highest? What about the one with the highest interest rate? Or maybe you do your own thing?

All have different reasons to start with that strategy but in the end you need to decide which one works best for you. Normally it’s the one that you pay the least amount in interest!

LOWEST AMOUNT FIRST –

This strategy is the only way that Dave Ramsey’s say to pay off debt, by starting with the lowest amount. The reasoning for this is that when you pay off the smallest debt first, you SEE and FEEL the difference plus free up some more cash faster to go into the next debt. You are excited! And I agree some of us need to feel the difference. Do you?

HIGHEST AMOUNT FIRST –

I am pretty sure you understand this one but personally I would NOT recommend doing it this way. This one could take months and months to pay off, when if you would have paid off another debt first you could have used that payment to help with this payment.

HIGHEST INTEREST FIRST –

This is something I worry about, the interest I could save it I started here… Some of those debts are gaining because of their interest.

YOUR OWN THING –

Maybe you’re like us and you have a lot of debt. But most of the debt is in student loans and you’re on the income based payment plan; making your payments small. But your car payment is larger. So you decide to pay the car first. That way you can use the car payment to pay off the other loans faster. This one is tailored to you!

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You are going to have to decide for yourself which strategy is best for you. And to make the deciding factor easier on you, I have created a FANTASTIC WORKBOOK!! Really it’s amazing!! I have been looking forward to this part forever. Are you ready?

I have created a DEBT CALCULATOR

With this calculator, you can enter all your debts, pick a strategy and see how long and what amount of interest you would pay with each. If you want to pay off you’re debts within a current amount of time, this calculator can give you an estimate of what your extra payment should be. Here is a video to show you how it works.

Inside the video I also talk about the PAYMENT CALCULATOR. This calculator is where you can track paying off all your debts! If you only wanted the calculator, you can download just that.

PLEASE NOTE: Both of these files are for Excel.

Sometimes it can be very helpful in seeing a visual on where you are with your debt repayment. So I have also created a Debt Chart Printable to track your debt. You can do one for every debt or all of it.

HOMEWORK: Download the Debt Calculator and decide the best strategy to pay off your debts. Then use the Payment Calculator to keep track of your debts. But also print off the Debt Chart PDF to have a visual of where you’re at!

MAKING A CHANGE

The only way you will get to your goal/dream is by you making a change. You need to change the way you think, you need to be different and change your behavior. You need to stop borrowing to make this work. Something we did when we paid off our first $40,000 in debt was we CUT UP our credit cards. That’s right we cut them. We had a lot of credit card debt and to make sure we did not add to it and help us change our behavior, we removed them.

This was hard at first but something happened, we only purchased items we had the money for. We now have no credit card debt (for years) and this was only possible because we cut up those cards. Please note that now we do have them but we use them the way you would use a debit card, only spending the money we have. In other words we pay them off every month.

I would recommend you CUTTING UP your cards to help you change your behavior and stop you from borrowing because this is very very important. This world makes you think that having a car payment and credit card debt are the normal and the only way to do things. But it’s not TRUE. Let’s stop living the lie! Let’s change for the better!

GETTING THINGS ROLLING

Some may look at their budget and see only enough to make the payments on everything. How are they ever going to make this work? First, I think almost all of us have been here or we are there. This feeling is horrible… But there is hope and that depends on you. You need to do something dramatic! One way of doing this is to sell something. Have a yard, sell the seldom-used item, sell that expensive car, boat, down size! There are recommendations that you sell anything (except the house) that can’t be debt-free in 20 months. This method will make a difference in lowering your debt and yes it will be hard but soon you could have NO payments.

Another way to get things rolling is by adding more income to the pot. Ask for a raise at work, find a side job, or work extra hours to increase the income. This will help add to your extra payment to increase the speed of your repayment.

Everyone is in different places in life and this process could take months or years to complete. But with the right amount of focus, sacrifice, and hard work; we all can remove our debt. Remember your dreams and the thought of being debt free.

OK I’VE PAID OFF THE DEBT, NOW WHAT?

I want you to imagine me giving you a big high 5 because WOW, you’re amazing. You did it! Now you can move onto the next step of fully funding your emergency fund!