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I think the most common misconception about debt is that if you have the RIGHT plan, you'll pay off debt. I agree to a point. A great plan is important to paying down debt, but it is not the starting point.
Paying off debt takes a lot of perseverance.
It takes focus and sacrifice.
Depending on how much debt you have and how much income you bring in, it will be one of the hardest things you've ever done. A good plan will only get you so far. In the end, your attitude is everything.
From the beginning, decide you WILL pay off all your debt. Have a positive attitude. Pay attention to the things you say to yourself. Replace negative messages with positive ones. It may sound silly or unnecessary, but a willing, hard-working spirit is the foundation for financial peace.
We think the best way to pay off debt is FAST. We did 5 key things to pay off $18000 in 18 months on a modest salary. Remember, "fast" will mean different things for all of us. If your debt is high and income is modest, fast may mean 2 years (or more). However, if you have a larger income and modest debt, fast might mean 6 months to a year.
There are many ways to reduce debt fast. We recommend these 5 things to friends all the time. They worked for us and we think they can work for you too!
1. START A DEBT SNOWBALL
If you are not familiar with a debt snowball, instead of paying a little extra here and there on your debt, a debt snowball starts with your lowest bill. Take everything you can each month and throw it on your smallest debt. Pay the minimum amount on all your other bills.
When your smallest bill is paid off, take what you were paying on your previous bill and throw it on the next one. As you pay each bill off, the amount you can use to pay off your debts increases (thus, a debt snowball). You have more money to throw at your debt.
A debt snowball starts with your lowest bill, not the bill with the lowest interest rate first. If you commit to paying debt off FAST interest rates don't apply here. I believe paying off debt is less about math and more about momentum. Something changes in your mind once you've paid off those little bills. You believe you can do it and are motivated to tackle the bigger bills.
2. CUT YOUR SPENDING IN HALF
Take a month or two and pay attention to what you are spending money on. Don't set a budget, just track your spending. Is there an area of spending you are surprised by?
For many of us, we can live on less than we think. Honestly, we are busy and disorganized. I get it. We are too from time to time.
We paid off $18,000 in 18 months by making BIG cuts in our spending. We made a commitment to only spend a certain percentage of our income and use the rest for debt. At that time, it was a huge stretch. Truthfully, we weren't making much money. I made a commitment to learn how to be a good steward of what we had.
My kids didn't play in expensive sports leagues. We didn't take vacations or wear expensive clothes. I didn't feel guilty about what I couldn't purchase them. Instead, I used it as an opportunity to talk to my kids about how to use money wisely. I explained to them just because people purchase nice things doesn't make them rich. Wealth is about good stewardship not the consumption of things. There is a difference. Teach your kids to discern the difference.
Could you live on 1/2 of your monthly or yearly income? What about 2/3rds ? Find pockets of your spending you could cut. I routinely ask myself what purchases are needs and what purchases are wants. It is amazing to me how many things we buy automatically out of habit, not out of need.
Remember, this isn't forever. Make a short term commitment that will have long-term benefits to your family.
3. SELL SOMETHING. YOUR CAR? YOUR HOME?
The quickest way to ditch debt fast is to sell something. If you have a large car loan, sell your car. Do you have debt on boats, furniture, or motorcycles? See those too.
Do you have a rental or second home that is not profitable? Sell it.
Is your house payment more than 1/2 of your monthly income? Consider selling it or refinancing your mortgage. We recommend your house payment should be about 25% to 30% of your monthly income.
The car industry has done incredible job marketing safety to us. Watch a few car commercials and see how safety is used to sell cars. We will do anything to keep our family safe and I can respect that. I want my family to be safe too.
But how much do we really need to spend to keep our family safe on the road? And what is the financial risk we put our family in when we take on a car payment we can't afford? Be sensible. Be smart with your car choices.
If you don't have big purchases to sell, start selling things you don't need on eBay. Have a garage sale. Get rid of anything you don't want or need anymore!
4. WORK. WORK .WORK. WORK.
If your debt is high and can't make good traction on your debt each month, consider getting a part-time job. Working extra hours or picking up a part-time job is a great way to pay down debt fast. Granted, it is not the most popular option. If you have little kids at home, it is a hard decision to make.
If your employer has a moonlighting policy or you just can't find the time to add another job to your calendar, we recommend The Other 8 Hours. This book helped us break through some mental barriers we had set up concerning work and debt.
The good news is you don't have to leave your house to make extra money. You could be a Virtual Assistant for a blogger, sell handmade goods on Etsy, take photographs, offer editing or graphic design skills on Fiver, or you could offer to watch children in your home. There are so many ways to make a little extra income for your family.
The trick is working extra hours in knowing you can stop as soon as the debt is gone. If you are committing to pay your debt off fast, this could be a 1 to 2-year commitment.
5. REIGN IN YOUR FOOD COSTS
Food tends to be one of the biggest line items in most families budgets. Cooking, eating out, grabbing Starbucks, it all adds up. Do you know how much you spend on food each month? Take a month or 2 and track all your food costs. What do you spend?
If you cut that by 25%, how much more traction could you make on debt? What if you cut it by 50%? It is not hard to cut food costs. It takes a little organization and willingness to try something new. I think even if you need to eat a super special diet, you can always cut back on food costs.
How do you reign in food costs?
Make a meal plan and stick to it! We love Emeals. They have an app, a built-in grocery list and recipes. You can even customize it for special diets and store preferences.
Shop at a discount grocery store. We are loyal Aldi shoppers. As my boys get older, I am so grateful to be able to buy high-quality food at ridiculously low prices. If you don't have an Aldi near you, do a google search for discount grocery stores near you.
Use cash. Set a weekly food budget and use cash to pay for it. You will spend less when you use cash. You'll be less tempted to throw something in the cart that is not on your list. If you use Emeals, the in-app grocery list will tell you exactly what your weekly groceries will cost!
This is not an exhaustive list on how to pay down debt, but it is what worked for us. It was hard work, but we are so glad we did it!
Get creative and let us know how YOU paid down debt quickly! We'd love to know!