The 5 Steps to Paying Off Debt -

In a world filled with student loans, mortgages, and credit cards, many will have you believe that debt is normal. While it is common, it doesn’t mean it has to be normal. The sooner you can be debt free the sooner you will have more choices and control with your money. To become debt free it takes patience, setting priorities, and lots of motivation. Here are the 5 steps to take when paying off debt.

1. Make Debt a Priority

If your debt isn’t a priority for you, you will most likely set it on the back burner. This is harmful for so many reasons, the main one being that debt can, and probably will, accrue interest if you don’t pay it off as you should. So instead of only have $30k to pay off, you may end up owing $50k, or even more.

Just as you prioritize your bills, you should prioritize your debt. If you have a written budget (which is highly advisable), include your debt! Write down all that you owe, and how much you need to pay every month.

Once you’ve made the decision to start paying off your debt, you should decide in what order you will pay off your debt. There are different approaches you can take including the Debt Snowball or Debt Avalanche or a combination of them. For the most part, consumer debt tends to have the highest interest rates and as such should be paid off first. However, if you have high-interest student loans or auto loans, you may find those are more important and choose to prioritize them.

2. Decide On A Method and Order to Paying Off Your Debt

So you’ve decided to prioritize your debt, you have it written it out, and you know loosely which debts have priority. Now how do you make sure you pay them all off and as fast as possible? You need to decide on a method! Popular methods include the snowball method and the avalanche method, but there is also the snowflake method and my version that I call the debt nor’easter.

Remember you always need to pay the minimum on all your debt at least. Additionally, it is more productive to target one debt at a time with extra payments than to randomly make additional payments left and right.

Snowball Method

In the snowball method, you rank your debts from least amount owed to largest, no matter the interest rate. You put any extra money towards the smallest debt first. This is supposed to help give you momentum as you pay off the smallest debt fast. You then “snowball” the payments into your larger debts.

Avalanche Method

For the avalanche method, you would rank your debts from highest interest to lowest interest rates, no matter the cost of the debt. While this would help you avoid a ton of interest in the long run, you may become discouraged if you are stuck paying off a large debt first as it may take a long time.

Snowflake Method

The snowflake method has you putting any and all extra money you earn or find towards your debt. This could mean a dollar found on the ground or a $15 rebate. You put these amounts towards your debt right away; they do not pass go, they go straight to debt jail. If you wait, you will likely use the money for something else.

Debt Nor’easter

My own little version that I call the debt nor’easter has you order the debt according to the avalanche method since it makes the most sense mathematically but allows for exceptions. I know that certain debt can come with emotional strings and you may want to prioritize them regardless of the interest rate or amount so they can move up the list.

You can use any of these methods or combine them, but the important thing is to make sure it fits you and your budget. You can always rearrange debt payments if your lifestyle changes. Once you have the order of your debts for your payoff plan write it down and place it somewhere, you will see every day.

3. Make Extra Money

Now that you have a solid plan in place and have started making an effort to pay off your debt, it’s time to make some extra money. You don’t have to get 3 or 4 part-time jobs to start making extra debt payments, although that’s an option if you can handle it, I don’t recommend it.

If you can, try to find to upgrade your job by either getting a raise or finding a new one that pays more than your current one does. While you’re searching, you can always pick up a side hustle. There is a side hustle for just about everything, and you can find one that matches your skillset. Instead of spending the extra money though, take all of your side hustle income and put it straight towards debt.

Remember no matter how you make the extra money it’s important to pretend it doesn’t exist (except for making sure you’ve got taxes covered) as you throw it at debt. It may hurt, especially when you’ve worked hard for it, but it will be worth it once you become debt free.

Related: How to Make More Money

4. Make Paying Off Debt The First Thing You Do With Money

Whenever you get extra money, don’t blow it on unnecessary items, pay off debt instead. You’d be surprised to see how much faster debt payoff is when you are throwing all that you can at it.

Once your budget is in place, you know how much of an extra payment you are going to make. Then make the payment. Don’t wait until the payment due date. Making the payment will not only ensure you actually put that amount towards your debt but also cut down on the amount of interest that accrues.

If you end up with an unexpected chunk of money, make debt repayment the first thing you do with that money. One of the easiest ways to do this is to use your tax return to pay off a larger chunk of debt at one time. So if you expect to get a sizable tax return (though if you are doing taxes right, you shouldn’t), then you should throw it directly at your debt. It may give you the momentum you need to keep going. Which brings me to my next point.

5. Keep Going

Even when it gets hard to pay off debt, even when you’d rather spend your money on a much-needed vacation, and even when you just don’t want to do it anymore, keep going. Debt is a cloud over you, and it only stays that way if you allow it too.

If you find yourself getting discouraged, take some time to think about why you’re paying off debt. Also, take the time to reflect on how far you’ve come. Do you want to take vacations? Start a family? Retire early? Those big life events are harder to do if you are in debt. To make sure that you can achieve those dreams, push past and keep going.

Wrapping it Up with a Bow on Top

Paying off debt is hard, but it can be done. Not only will these 5 steps help you start paying off debt, but they also serve as a reminder that it’s been done before. You don’t have to be enslaved with debt.

Check out the Student Loan Conqueror series for some extra motivation.

If you are looking for some technological help to find extra money to pay off debt, consider using Qapital. Qapital lets you set up all kinds of rules like setting aside money. For example, it will save for you when you give in to a guilty pleasure or come in under budget. Though once you hit a savings goal in Qapital it’s up to you to apply it towards your debt.

The 5 Steps to Paying Off Debt

1. Make Debt a Priority