Kiss Your Debt Goodbye: Three Steps to Debt Freedom

16 Jan
by Jenny, posted in Money Honey   |  4 Comments

Make this the year you tackle those lingering debts. Shedding the restriction and stress that debt evokes is well worth the effort. It may seem overwhelming, but you can break it down into manageable pieces.

Three Steps to Debt Freedom

1. Write down how much you owe.
Get a paper and pencil or spreadsheet together that simply lists out exactly how much you owe to each creditor and what your monthly payments are. This may take an entire month if you rely on bills showing up in your mailbox to tell you where to send your money, but it will be the most important step you’ll take. Knowing where you’re starting from gives you the leverage you’ll need to lunge forward.

2. Write down your monthly income.
This is a critical step to discovering if you have enough to stay afloat each month. If you discover that you’re sinking further in debt by paying out more than you bring in each month, don’t dispare. You can start shaving unnecessary expenses and generating extra income to try and close the gap.

For help organizing your monthly expenses and income, check out this free budgeting template.

3. Pick a debt to kill.
There are two schools of thought on how to select which order to pay down your debts. The first is to pay down the debt with the highest interest rate first. The second (and most psychologically motivating) option is to pay down the debt with the smallest balance first. Choosing the first option ensures you’ll pay less interest, but the second option helps you to maintain motivation by providing the thrill of eliminating some of your debts quickly. Choose whichever option feels right to you. You can always switch methods after you get started!

To determine how long it will take you to pay off a debt, check out this free amortization template.

Are you ready to change your future?

What would you do with your money if you weren’t sending so much of it to creditors each month? Would you save more for retirement, change careers, cut back the number of hours spent working or travel more?

Start today. It’s not as daunting as it seems, I promise. This time next year you’ll be so glad you got started now!

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Related posts:

  1. Learning to Avoid Debt Even with a Single Income
  2. Goodbye Debt. Hello Hawaii.
  3. You’re Consumer Debt-Free. What Now?
  4. Debt Elimination Update – June 1st
  5. One Debt Bites the Dust

4 Responses to Kiss Your Debt Goodbye: Three Steps to Debt Freedom

  1. Hi Jenny, great tips! With regards to picking a debt to kill, option 2, i.e. paying down the debt with the smallest balance first, worked best for me personally. It is so much more motivating and helped me to finally stick to paying it all off :-)

    • That’s great to hear that option two worked for you Moira Monney! We incorporated both methods, switching up our plans as we saw our debt-freedom date getting closer.

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  3. Getting out of debt is such an important part of reaching financial freedom. My wife and I are tackling getting rid of our student loan debt. We plan to devote one of our incomes mostly to giving and to debt reduction as part of our long term plan of finding financial freedom.

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