8 Steps To Eliminate Debt
Want to Eliminate Debt?
We have put together a list of 8 tried and true steps to eliminate debt and reach financial freedom as quickly as possible.
Keep reading on the next pages to discover 8 secrets to have you debt free in no time!
#1 List Your Expenses
Create a list of every required fixed expense you have to pay each month, such as rent, utilities, cell phone bill, etc.
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#2 Create a Budget
Set a budget for required variable expenses each month such as groceries, gas, etc. Review your spending over pasts months and set a reasonable budget for each expense.
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#3 Calculate Available Excess Income
Add up your budgeted expenses from step 1 and 2 and then subtract them from your total take home pay, this gives you your available excess income each month. This is the money you can use to start building a savings account and eliminating debt.
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#4 Make a Plan For Your Money
We would recommend setting aside 80% of your available excess income for savings and debt elimination and 20% for entertainment / fun. Of course, if you are really serious about debt elimination, you can reduce the amount you will use for entertainment / fun purposes each month and put the extra towards getting rid of your debt faster. We think it’s a good rule of thumb to still leave a little bit for enjoying life. You aren’t going to get far with this plan if you get burned out on your new debt elimination plan too soon because you didn’t leave anything to have a little fun with.
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#5 Plan For The Unexpected
In step 4 we recommended setting aside 80% of your available excess income for savings and debt elimination, and we often get asked how to split this up. Why not put it all towards debt elimination. Well the answer is simple. Life happens. If you don’t have anything in savings, you are going to get stuck in a bad place ultimately building up more debt. So what we recommend is splitting 80% of your available excess income 50/50 for debt elimination and building a savings account. This means in effect, you will be putting 40% towards debt elimination, 40% towards your savings account, and leave 20% to enjoy life a little.
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#6 List Your Debts
OK, so now you should at least be getting a fairly good handle on your financial condition. The next step is to make a list of all your debts, don’t leave any out. Next, put the list in order from smallest debt to largest debt. You are going to put ALL of your money towards eliminating the smallest debt until it is paid off and then start paying off the next smallest debt. Why not pay off the highest interest debt first? It’s important to get rid of payments ASAP to free up your debt elimination budget for other largest debts, and by getting rid of your smallest debts first, you will start experiencing the thrill of completely eliminating debts (even if they are your smaller debts). It’s important to celebrate the small victories in your quest to eliminate debt completely, and by paying off your smaller debts first, you will have more wins faster.
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#7 Stay Informed & Be Patient
The reason most people get into debt is because they don’t have a handle on their expenses and debt, so if you have completed steps 1-6 above, you are now in much better shape than most and are ready to start getting rid of your debts for good and never look back! When it comes to debt freedom, being informed and knowing the numbers (income, expenses, debts) is one of the most important things!
The thing we want to mention in this step is that nothing happens instantly with debt elimination, but with proper planning, you will start making good headway and many times you will be able to find ways to eliminate debt faster by brining in some extra income with some creative ideas!
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#8 Financial Freedom Is Within Your Reach
Now, you are getting your financial life back in order. By having your budget iron clad and written out each month, you are in the know. The knowledge of your expenses and where your budget is going each month is crucial. Now that this is in order and you are already taking steps to work down that debt, why not think of some creative ways to bring in some extra income? How about selling that baseball card collection on eBay or doing some part time work for someone looking for help in the classifieds. Maybe you have a neat business idea you can get started with little to no startup capital and really start getting rid of that debt fast. We have found that if you set your mind to paying off that debt faster and TAKE ACTION, you will find all kinds of creative ways to start paying it down faster. Debt elimination is a race of endurance and determination. If you set your mind to it, it will happen even faster than you can imagine now. Just start with small wins and small steps and progress from there. Little, by little, you will win back your financial freedom, and soon be able to pursue even greater goals like home ownership. If you noticed with our plan, you are steadily building your savings while eliminating debt. That is a win / win scenario! The last thing you need is the ability to say no. When everyone else is going out to lunch or spending excess money shopping for clothes they don’t really need, you need to say no. Why? Because it is your future you are determining. Every time you say no to eating out or a frivolous expenditure, you are saying yes to your debt elimination, financial freedom, and future financial goals like home ownership. Those Yeses are much more important than a temporary pleasure like eating out. You won’t even remember what you ate out at a fancy restaurant last year, but you will remember the pure joy and sense of accomplishment that comes when you pay off that last debt and NEVER have to go into debt again. That will be a day to celebrate. When all your friends are going to Starbucks, why not bring a tea bag and ask for a FREE cup of hot water!
Bonus Tip. Credit cards can be the devil when you are working to eliminate debt. Instead of using your card for purchases, take your budget out in cash and put it in designated envelopes for each expense. Then, if you don’t have the cash, don’t spend it!
Tip #2. You can get several budgeting apps to help you on your quest to debt freedom. One of our favorites is called “Daily Budget”. This app allows you to enter in your income, expenses, debt payment budget, and savings budget each month and it will calculate a daily budget of your remaining available excess income (we recommend 20% of your total excess income) and show you what you can afford to spend for entertainment or fun. Then you can enter in every time you spend and it will deduct it from your available daily budget. If you don’t spend some of your free money each day, you will get a little extra every remaining day of the month. So it shows you how it will pay off if you don’t spend and makes it feel good because you are really in the know and don’t have to feel guilty about grabbing a cup of coffee or going to the movies because you know it is in the budget.