Paying off debt is one of the best things you can do for your family, your sanity, your bank account and your dream of living a simpler life. Think of how amazing it would be to make decisions based on something besides money.
Without debt you can…
- spend money without guilt or worry
- save money at a faster pace
- give money away to people and causes you care about
- do work that you love instead of work that pays the bills
If you’ve had enough of bill collectors, full mailboxes, ridiculous interest payments and living paycheck to paycheck, take the first step and pay your smallest debt off completely. Let’s back up one step. I am a Dave Ramsey girl, so I have to recommend that you save $1000.00 first. That emergency fund will keep you on track during your debt repayment and protect you from emergencies. Dave Ramsey says Applebee’s is not an emergency. (Neither are shoes.)
Paying off Debt: 4 Steps
1. Honest Inventory. Once your $1000 is safely tucked away make a list of your debts. Don’t include regular monthly bills, just the other stuff. Include old medical bills, car loans, credit cards, student loans and anything else that you can pay off and be done with. Keep your mortgage separate if you have one. You can go after that later.
2. Think Small. Next, organize your list of debt from the smallest amount owed to the largest amount owed. Don’t worry about the different interest rates, or the most aggressive bill collectors. They’ll all be gone soon enough.
3. Attack. Pay your minimum monthly payment on each bill each month, but allocate any additional funds each month to your smallest debt. When it’s paid in full, get notification from the biller that your account is paid and closed and save that documentation in a folder or digitally.
4. Dance. Now it’s time to celebrate. You may have 9 more debts to clear, but you just paid one IN FULL. Do a little dance, and then use your excitement of accomplishment as momentum to start on the next smallest debt. Repeat until you are finished. (no matter how long it takes)
If you are determined and intense about your plan to be debt free, you won’t be dining out much or shopping while you are paying down debt, and that’s ok. Your consumption habits will change as a result, which will help you from incurring this debt ever again.
Read motivational books and blogs while you are paying down debt to stick to your commitment.
- Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century
When people ask me how I quit my job and started my own business, the first thing I tell them is that I paid off my debt. It was the most important step.