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Ten Steps To Paying Off Your Debt

Getting into debt can seem like a very easy thing to do. Outside of home or car loans, it’s not something that usually happens overnight. It takes time for the debt to build. Whether you owe money on credit cards, student debt, personal loans, car loans or even payday loans, just as it takes time for the debt to build, it can take (even more) time to get your loans paid off. Here are ten steps to help you along your journey to Financial Freedom:

  1. Spend Less – It seems that it’s in people’s nature to spend money. Whether it’s on the day-to-day items or something more fun (vacations, for example), no one likes to tighten their belt. First things, first – stop eating out. While it can be time consuming, cooking at home will significantly lower your monthly food cost. This includes lunch. Brown bag it. Packed lunches are cheaper and, most likely, healthier than what you would get going out for lunch.

    As mentioned above, vacations are fun. They’re also expensive. According to, the average cost of a vacation is $220 per person, per day. That’s over $1500 per person, per week. If you are in debt, that is an expense that you should likely put on hold until the debt is paid off. If you are a married couple, the $3000 you would likely put towards vacation would help pay off your debt quicker.

  2. No New Debt – Stop using your credit cards. Cut them up. Put them in a block of water in the freezer. Whatever it takes to stop using them – stop! More debt is not going to help you get out of debt.

  3. Budget Accordingly – Whether you have debt or have no debt, having a budget is the first step towards having financial freedom. The budget will keep you on track and should include everything that you spend money on in a month. (AND items that you spend money on semi-annually or annually (ie insurance).) Make sure that you’re not faking your budget. Include all of the items as well as debt payments.

    To make the budget more effective, use auto-pay when available and cash when it’s an “everyday” expense. (Once you run out of cash for the month, you’re out of cash.) This also encourages you to spend less money monthly as most people do not like spending cash.

  4. Debt Snowball – The debt snowball was popularized by Dave Ramsey. (Yes, the Dave Ramsey that recommends working with a SmartVestor Pro (That’s us!)) The basic theory behind the debt snowball is to make the minimum payments on all of your debt except the lowest balance credit card/personal loan. Focus your budgetary efforts on that debt first. Once it is paid off, roll the payment you were making on that debt plus the minimum payment of your second lowest debt into the second lowest balance debt. When you finish making your payments on that debt, move those payments (plus the 3rd debt minimum) onto your third debt. That continues until all of your debt is paid off. Along the way, you will experience some wins as you get each debt paid off. Reward yourself for those wins.

  5. Negotiate Interest Rates – If you owe a credit card balance, call your card company. See if they will lower your interest rate for you. Sure, they might not, but it never hurts to ask. (The worst they tell you is no and you’re in the same position you were in before.) If they do lower your rate, even for a short period of time, this will help lesson your financial burden in the future. If they don’t lower your rate, there are ways that you can lower your rate yourself.

  6. Balance Transfers – Balance transfers are tricky and, not always worth it. You must also be cognizant that playing the “Balance Transfer Game” may hurt your credit. That said, it is an option that can drastically lower your interest rate on credit card debt. If you choose to go this route, be sure to understand any annual fee or balance transfer fee that you may incur. Also, keep track of when the interest rate will increase and what that new rate will be.

  7. Refinancing – Refinancing in today’s interest rate environment is not as beneficial as it was a few years ago. Interest rates have increased and there often isn’t enough savings to warrant the refinancing.

    There is also a train of thought that you should roll other debt into your mortgage. This is something to not take lightly. By rolling your consumer debt (credit card, personal loans, car loans, etc.), you will be making payments on those items for the remainder of the mortgage (usually 30 years). While it can lower your monthly payments, it will also likely result in higher overall expenses during the life of the loan.

    One other note on refinancing: If you ever speak with an investment advisor who recommends “cashing the equity out of your house” for other investments, run. Run fast. Don’t look back. While diversifying your investments is important, jeopardizing your living situation so that you can make investments is not a wise move.

  8. Sell Things – No one likes to sell their things. Heck, I can be a bit of a pack-rat. When you’re in debt, though, you need to look at everything. That includes getting rid of things you either don’t need/use or is a luxury item that you cannot afford. There are many ways to sell items in today’s world: EbayFacebook Marketplace, Craigslist, etc. When you sell your items, it’s important that you ask a fair price (so that they actually sell) and that you sell safely. If you’re using a format where you need to meet someone in person, find a public place that is busy and well-lit. Many police/sheriff stations now have designated spots for just such an exchange.

  9. Second Job – While second jobs aren’t fun, it does allow you to make more money which, in turn, allows you to pay off debt quicker. This doesn’t necessarily need to be a “for life” decision. It can be a decision that stays until the debt gets paid off.

  10. Forget the Joneses – The Joneses. It seems keeping up with the Joneses is what gets many into debt problems in the first place. It’s time to try to forget them and their lifestyle. Live your life. You don’t need that expensive brand new automobile. (I get the allure, but have never actually bought a new car myself. I’d rather not get hit with that immediate depreciation.) Snowmobiles, jet skis, boats and other toys are all fun, but they’re also expensive. If you have the money saved up to purchase them (because you budgeted accordingly), by all means enjoy! If, however, you are going into debt for a toy or so that you look better to the neighbors, the debt spiral will continue.