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The "Million Dollar Question": How Do I Start Paying Off Debt?

August 1, 2017 • Steve Cyr • Tags:

 

Debt is a weird thing.  Different people can see it in different ways; some good, some bad.  Even hearing the word can trigger feelings of anxiety and stress, and most of the time it feels like when you’re in it, you should never talk about it (so basically you’re in Fight Club, because you DO NOT talk about Fight Club).  Regardless of your situation though, one thing is true about debt: it’s almost always going to be in your best interest to pay it off.

This is easier said than done.  Even if you’re in a relatively small amount of debt, it can get pretty overwhelming to get a handle on things if you’re not careful.  Let’s put this into a metaphor: It’s like swimming in the middle of the ocean - you’re exhausted, you’re trying to keep your head above water, and you don’t know which direction to start heading to find land.

Well fear no longer!  Like a majestic friendly dolphin swimming up beside you and offering a fin to guide you to shore, we are here to help.  We’ve sorted through waves (technically web pages… but you get it) of what we believe to be the most valuable tips on cruising your way out of debt and onto that beautiful sandy beach just in time to watch the sunset a.k.a. being debt-free! Girl riding two dolphins

So let’s take a look at what we’ve picked as some great general starting places that will get you on the boat to paying off debt (and getting you out of that water! There are sharks in the ocean after all).

Step 1: Separate Your Monthly Expenses from Your Debts

First off, let’s take living expenses such as a mortgage, phone bill, and household food and goods that you are paying on in your day-to-day life (usually on a monthly basis) and separate them from debts that you owe like student loans or medical bills.  Push the debts aside (we’ll come back to them in a few minutes).

Step 2: Create a Budget

This is a step that you’ll find no matter where you go for debt advice, and there’s probably good reason for it.  It’s really hard to know how to manage your finances if you have no idea where your money is going in the first place.  Take the list of your living expenses and figure out how much goes towards those items.  The “best” budget for you is something that you can easily understand.  It can be as simple as a black and white spreadsheet or as complicated as some fancy software you’ve purchased.  The important thing is that you know what your money is doing.

Step 3: Prioritize Your Expenses

Now that you know where all your “Benjamins” are heading, you should determine what’s important and necessary and what you are willing to cut back on.  This step may be a little more difficult because obviously living expenses like rent, utilities, and food are vital, but you have to drill down and determine whether things like your monthly Men’s Fitness or Netflix subscriptions are wants or needs.  Are having these things more important than moving closer to the stress relief that comes with being debt-free?  Prioritize your list of payments in a number format so you can get a visual idea of what needs to be taken care of first and last and what can be dropped completely.

Step 4: Cut the Fluff

Now that you’ve determined what is necessary in your life, it’s time to cut out the unneeded extras.  Maybe you work from home and need Wi-Fi; can you still do your job and get a less expensive package?  Do you have what you determine to be “excessive” coverage on things like your car insurance that you could pay less for?  Every situation is unique when determining where the fluff lies, but start asking these types of critical questions as you look at your expenses and trim where you feel comfortable in doing so.

Step 5: Lock Down Your Number

You’ve determined your needs over your wants and cut the fluff out of what you pay, now what? It’s time to determine that “magic” number that you’re paying every month for these things and writing it down.  This is what you need to live; anything extra is now available to use at your discretion.  What do we do with that extra money?  You guessed it!  Let’s take a look at that debt we put aside in Step 1.

Step 6: Use the “Debt Snowball”

We’re taking a page on this one from Dave Ramsey, a well-known debt expert.  Place your debts in order from smallest to largest and make the minimum payments on all of them except the smallest one.  Use anything left after these minimum payments are made and put it towards that smallest payment.  Once that is paid off completely, move your way to the next smallest amount and keep the pattern going.  You will find yourself paying off debt quickly and if you stick to it, you’ll eventually have all of that discretionary money left over every month!  You’ve reached the beautiful beach of being debt-free!

Couple looking at finances

Now these are simple and general guidelines for how to begin your journey of paying off debt, but if you commit yourself to them, you’ll eventually find yourself in a more favorable financial situation that you did when you started.  Continually picture the feeling you’ll have when you are no longer fighting waves of debt and swimming to stay afloat, but rather feeling the warm sand of relief between your toes.  You will push yourself and hang tough while on your way to paying off debt in no time!  So start swimming away!