Being in debt can be a stressful experience. No matter what your circumstance is, if you signed for a loan, you are obligated to pay it back even if you have a life-altering experience like losing a job, getting into an accident, or even if you have increased expenses due to having a child.
Sometimes debt can just be an unintended consequence of too much holiday spending — or overspending any time of year. Many people try to get out of debt, but life slaps them in the face hard enough that they give up. But that doesn’t have to be the case. There are so many people who are getting out of debt every single day, and not only that, but they are getting out of debt in a short period of time.
So if you re ready to get on a path to financial freedom, it s important to have a plan for how you re going to tackle that debt!
If you want to get out of debt fast, you have to stop using debt to fund your lifestyle. This means no more financing furniture, no more signing up for credit cards, no more test driving brand new cars that you don’t have the cash to pay for. This will help you focus solely on the debt that you currently do have so that you can develop a game plan to pay it off quickly.
You might be wondering, Why is having an emergency fund important ? Well, if you don’t have any money in the bank and an emergency does happen, how are you going to pay for it? For most people, credit cards become the funding source for those emergencies. If you are trying to get out of debt then you need to put a buffer between you and debt; that is exactly what an emergency fund does.
Developing a budget that tracks your income and your expenses is crucial to getting out of debt in a short period of time. It will help you gauge where you are with your finances so that you can move forward toward your goal.
Creating a budget will expose whether you have money left over, which is called a surplus, or if you are in the negative, which is called a deficit. The goal is to increase your surplus and use that money to pay down your debt. Below are two ways that you can do this.
This is paramount to mapping out a plan to pay off your debt. There are two approaches that are worth considering. The first is where you list your debts smallest to largest regardless of the interest rate. This is the method that we used to pay off $52,000 in debt in 18 months and it worked great because it helped us build momentum. When we paid off our first debt it put wind in our sails. Even though we had higher interest debts, this gave us something that was very powerful: the belief that we could get out of debt quickly if we stuck to the plan.
The other method is called laddering, which is Clark s preferred method because it will save you the most money over time. The way it works is you list your debts, starting with the highest interest rate card first and end with the debt with the lowest interest rate. This method makes the most mathematical sense, because you will save the most money in interest over time. Regardless of which process you choose, the key is to stick with it.
If you choose laddering, put as much money as you can each month toward the card with the highest interest rate, while still paying the minimums on the other cards. Once that debt is paid off, move on to the card with the second highest rate and so on. But this is very important: Do not close the account once the balance is paid off. That will damage your credit. Just let the account sit at a balance of $0.
One other thing: if you have one or a few small debts you wipe out completely, go ahead and do that. That will give you some tangible progress to get started — and then start tackling the card with the highest interest rate.
When we were getting out of debt, there were several times where extra money fell in our laps that we had not factored into our debt elimination originally. We decided to take this cash and use it to tackle our debt. Some good examples would be a tax refund, selling a car, an inheritance, winning a bet, etc. The more cash you can put towards your debt, the faster it will disappear.
Debt doesn’t have to be forever. Develop your financial game plan and start your journey toward being debt-free today.