Previously I have talked about making sacrifices and that you need to decide how bad you want your financial goal. But there maybe a point that you decide you want to pay off that debt or save even faster! So how do you do that?
Before you can even think about this you need to be on a budget. If you’re on one, great let’s move on but if you’re not or need help with it check out my post about creating a budget and using a budget.
START PAYING OFF DEBT FASTER!
First, write down all your debts (or how much you want to save), you need to make sure you are writing down your payoff amount for that day. Next, write down the interest rate right by amount. TIP: Write these down with the lowest pay off amount first. You can use our free Debt printable for this!
Now total out all the amounts at the very bottom. This is your total debt or amount you want to save. When do you want to pay off this amount 6 months, one year, 2 years? You need to decide!
Let’s do an example of this (most of these are averages in 2015):
- credit card debt: $15,000 with 15% interest
- student loan: $35,000 with 4.5% interest
- car: $20,000 with 3% interest (lower than average)
TOTAL: $70,000 in debt!
Now, this is a lot of money but let’s say we are going to pay off this amount in 5 years. How much do you need to pay? (This amount does not include interest) Take $70,000 and divide it by 60 (5 years x 12 months), you would get a total of $1170 per month (I rounded this number up).
TIP: If you want a more actuate and easier way to get this amount, use the Debt Calculator!
That is great, 5 years and debt free but now let’s get crazy and pay that off even faster! Let’s say you could get another job (or raise) and get another $500 a month. By doing this you could pay off the debt in 3.5 years. That sound even better!
This is how those people with those crazy stories of, I paid off $40,000 in 10 months do it. They cut out things in their budget, they get extra jobs, they don’t go on vacations. Everything extra goes to the debt. They sacrifice for awhile to get to their GOAL!
Something to look at while paying off debt is, where to start? There is a term called “snowball”, this is where you start at the lowest amount and work your way to the highest. So you pay all minimum payments toward your debts and all the extra goes ONE debt (the lowest). Once that debt is paid you move to the next. This is a simple way to pay off debt faster and it works.
But if you’re like me and look at the interest, you could do it differently. (I would always say to pay off credit cards first because normally the interest is crazy!) Look at each debt and figure out if you would save thousands in interest by paying this debt first! But remember the extra money you could get by paying off a smaller amount first!
For example, we have undergrad student loans and grad student loans. The undergrad is less in amount and interest but if we pay off the grad loan first we could save thousands of dollars in the long term.
The whole point of this post is to figure out how MUCH you want that goal. Then do everything, if not more to get there. Think crazy and dream BIG! Then you can have a story of paying “x” amount in “x” months.