1. Get your Credit Score and look at your Credit Report to see where you stand with the government and how you look to lenders during a credit analysis.
2. Pull out your bank statements and write down (in exact numbers) how much debt you owe. Numbers don’t lie and sometimes we have to get face to face with the truth before we can make an effective plan.
3. Get yourself on a BUDGET! None of this working with estimates stuff. What are your REAL numbers? What is your exact dollar amount of income and what bills and expenses do you have? Create a budget at the top of every month so that you can direct your dollars where to go. Why every month? Because expenses and income fluctuate. Cash gifts happen, doctors appointments get planned, and major life events happen that can change everything. Being prepared ahead of time, keeps you responsible and out of debt.
4. Quickly save $1,000 cash for emergencies. Stuff happens, I know. That’s how I ended up in debt. This eliminates the urge to charge a credit card or take out a loan for an emergency. For example, if you get in a car accident, most car insurance deductibles aren’t above $1,000. With the money saved, you can pay off the debt without charging a credit card. If your fund gets depleted, build it up again.
5. List your debts from smallest to largest and start paying off your debt one by one. Begin with the minimum payments on all of them and use excess money to pay down the smallest debt. When that debt is paid, take the minimum payment and the excess income and apply it to the next debt. This creates the debt snowball affect.
5b. List your debts from the highest interest rate to the lowest, and pay your debt down that way. This one makes financial sense, but may be harder psychologically because your highest interest rate may be your largest debt. Therefore, it may be easy to lose steam because of the time it takes to build momentum.
6. Keep at it. Don’t give up! I’m currently on Dave Ramsey’s Baby Step Two and paying off my debt. It’s challenging, but I keep myself motivated with books, seminars, and podcasts. I’ll leave my favorite motivators below this video.