Knocking Out Debt

Debt has become the “normal” way of life for everyone.  We live in a society that has to have everything now and debt has become the solution to that craving.  So many people look at knocking out debt as something that is impossible to do.  Or that being able to pay off their debt is only for the super wealthy.  Knocking out debt doesn’t have to be impossible and can be done by everyone.  If someone truly wants to be out of debt they have to be 100% devoted and focused on achieving that goal.  They must also realize that it is a process and is not something that happens overnight.  After all, you didn’t learn to walk or talk in one day.  Below are some steps to moving towards knocking out debt.

1. Budget – Sit down and actually write out a budget.  Put on paper all of your income for the upcoming month.  Once you have your income written down, then write down your monthly expenses by category.  Take a look at this list and see what expenses that you have written down that are areas that you could cut back in because they are either not necessities or that you are overpaying.  For example, if your expenses for the month have “eating out” as the highest percentage of your expenses, start cooking at home and save money.  Take away the unnecessary expenses and allocate that money for extra debt payments.  Doing a budget and looking at it regularly will help you stick to your plan of paying off debt.
2. Debt Payments – Now that you have done your budget and have allocated more money to go towards your debt instead of “wants & pleasures”.  Look at your debts that you have and allocate the extra debt payments from your budget to your smallest debt first.  Obviously you will still make your minimum payments on your other debts, but throw the extra money you have at the smallest debt first.  The reason for doing this is for psychological reasons.  The smallest debt can be paid off fast by doing this and then people will start to see the results and want to tackle the next debt.  Once the first and smallest debt is paid off, take all of the money that was going towards that first debt and throw it at the next smallest debt.  If you keep doing this the amount you are throwing at the next debt gets bigger and bigger.
3. Savings – If you are keeping up with your budget on a regular basis, you will be able to locate areas that you can constantly save for each expense.  Now granted some expenses such as your house payment can’t be cut back, but you will see other things in your budget that you could either shop around to save on or cut out because you realize it is not necessary.  So always be on the lookout for savings.
4. Accountability –  Getting out of debt is a commitment and will require some sacrifice in order to achieve the goal.  It helps to have people around you that are committed to the same goal.  Set up a group or join local groups that are devoted to the same goal that you can report back to each other and express how you feel, how well or not so well you are doing, and discuss ways to save.  This will help keep everyone accountable knowing that there is someone there to support them through the process. It wouldn’t even hurt to have the leader of the group be someone that has gone through the process already.  This person can give insight of the process and the rewarding feeling accomplishing the goal.

Your income is a huge part of being able to save for retirement, emergencies, investing, giving to charity, and being able to do what you want to do.  With debt in the way you are not free to do those as you would like to.  Make the commitment to knock out debt today.  If you have any questions feel free to leave us a comment or contact us.