Paying off debt is easier said than done. Like any long journey, it starts with a single step.
The first rule of paying off debt is to stop accumulating more debt!
Again, this is easier said than done. But, you have to focus on it and manage your spending and expectations.
That doesn’t mean that you can’t go out or do anything you enjoy, but you can’t pay for it with credit. If you don’t have the cash, you can’t do it!
If you do have debt, the second rule is to pay off your debt incrementally. You will need to start with a plan to pay it off.
Here’s the plan
- Start by listing out all your debts from highest to lowest balances.
- Take the lowest balance, and then add as much to that payment as your budget allows. Over time, you will pay off this account.
- Once you have paid off the entire balance of that account, take the entire payment from the first payment (including the increase that you applied to it) and add it to the monthly payment of the next smallest account.
Since it is likely that you are paying only the minimum payments on your balances, continue to do so while you add as much as you can to the current one. It may take you some time.
Eventually, you will be amazed at how fast it will be eliminated!
As you can see, it’s a pretty straightforward process with only three steps. By using money from previous payments, you will increasingly accelerate the payoff of the next account.
It can be almost addicting to see the acceleration of the decrease in your balances!
If you get a bonus or a pay raise, apply it to the payoff amount. For every account you pay off, it’s like giving yourself an investment return of the interest rate of the account that you are paying off!
You can make this plan even easier by setting up bill pay with your bank every payday. This will make it transparent and before you know it, your debt will be paid off.