You won’t believe what’s inside this safe. Next time you see me, ask. It’s a whole other story that I won’t get into today.
Instead, we’re going to talk about an amazing feeling. That amazing feeling of knowing you’re debt free. And how you can achieve the financial goal of being debt free this year.
Becoming debt free starts with a mindset. Knowing what you want. And why you want it.
Why should you be debt free? For many obvious reasons. Not having the financial obligation of paying interest on borrowed money. Having control over your financial well being. Behaving in a financially responsible manner as you live a life of financial freedom.
I understand the challenge of being in debt. I’ve been there. I’ve experienced the hardship of being surmounted by debt that has become unmanageable. Missing credit card payments. And *gasp* even being sent to collections. This is something tough to admit, but I’ve experienced it.
If you’re in a position where your debt has piled up, monthly payments are becoming a burden and you have no idea what to do next, it’s time to take control. I’m going to give you a few simple tips based on the strategies I executed to get me out of debt and manage my finances.
Know What You Want
Getting rid of your debt starts with knowing what you want. Unless you have a reason and a burning desire pushing you to eliminate your debt, you just won’t take it seriously enough. It won’t be a compelling pursuit and you’ll be stuck in a cycle of making the minimum payments on your debt and then racking it back up again.
For me, it was the desire to be financially responsible to give my family stability. I have a wife and a young child. Why would I be so careless as to not managing my debt properly? What kind of future would I provide for them?
In addition to this desire, I had specific needs to pursue. A second home. A stable livelihood. Building up savings and buying investment properties. And building a fortune over the long term.
Know what you want so you can uncover the motivation for paying off your debt.
Set a Goal
Next — you need to set a goal. It’s great to know what you want, but achieving that requires action, and taking action starts with goal setting.
If you don’t have a debt payment goal written down on paper, or typed up on your computer or smartphone, about how you will start to chip away at your debt, now is the time to start.
What kind of goal should you set? And how do you approach it step by step?
Perhaps you’ve heard of “SMART” goals: Specific, Measurable, Attainable, Realistic and Time-bound.
Start by grabbing a piece of paper and itemize all of your debt. Pull up your credit card statements, bank statements (for your line of credit), and other documents that relate to your debt. It could be your student loans, car loans, consumer goods purchases (that big TV you bought on Boxing Day last year…).
Write down your debt, line by line, and add it up. You’ll arrive at a total figure.
Now let’s work on setting a goal to pay off your debt using the “SMART” goals concept.
Let’s say you have $20,000 in total debt. Your goal could look something like this:
“I will eliminate the $20,000 debt on two credit cards and one line of credit by December 2021. In 2019, I will eliminate $7,500 of debt on X credit card which has the highest amount of interest.”
This goal is specific, measurable and has a specific time frame. Is it attainable, and realistic? That depends on how disciplined you are and what kind of effort you’re willing to put into debt elimination.
In contrast, setting a goal like “I want to be debt free” is not specific, nor is it measurable, nor is it based on a timeframe to achieve the goal. It certainly won’t be attainable and you can’t be realistic because it’s just so vague.
Set a specific goal. Make it measurable. And make it time based. Setting a goal like this will make it attainable (because you know the timeframe you need to achieve it in) and realistic (because you’re identifying just how big of a chunk out of your debt you want to get rid of right away).
Create a Plan
This is where you get even more detailed about your debt elimination. Having a goal to eliminate debt will lead you to creating a detailed plan on how you’re actually going to do it.
When you’ve identified the first debt you want to get rid of, identify activities that are necessary for you to get rid of that debt. There’s really two ways of chipping away at debt.
One is to make more money (starting a side hustle, taking on part time jobs, selling stuff you don’t need for cash), and the other is spending less money (not eating out as often, not splurging when you go shopping).
Let’s look at the $7,500 credit card we want to pay off.
If you want to eliminate this debt in 2019, you’re going to have to come up with a plan to make extra payments until this debt is fully eliminated. Keep in mind, you’re paying interest and principal, so you will need more than $7,500 to get rid of this debt.
Do you have anything around the house you can sell so you can have a lump sum amount of cash to pay down this debt?
Or perhaps you could take on a part time job that will pay you an extra $200 or $300 a week (that’s over $10,000 a year before taxes)?
Maybe you’re eating out a bit much, and you could save an extra $100 to $200 a month… or perhaps you’re spending too much money shopping, or going to the movies…
As part of your plan, identify the activities you need to do to pay down this debt. Be as creative as you want to be. After all, you should be inspired to tackle your debt head on and there are no limits to what you can do to find opportunities to pay off your debt. (Just don’t rob a bank or do anything illegal, okay?)
Tools You Need
Having an action plan is great, but to be effective at debt elimination, you’re going to need tools. The best tool I used to get me out of debt was a budget.
You’ve heard this many times before, I’m sure. Have a budget so you can properly manage your income and expenses. A budget helps you identify how much money you bring in (after taxes), and how much money you spend.
When you put a budget together, you can visualize where your money flows. This helps you identify what expenses you can cut, or if you need to make more money.
Tackling my debt made me aware of how much money I was spending on dining out. It also gave me a smack on the head telling me I wasn’t making enough money for the lifestyle and financial goals I wanted to achieve.
Knowing this, I pursued opportunities to increase my income, while reducing my expenses.
I’m not telling you to stop enjoying your lifestyle, don’t eat out, and stop buying stuff. But I am telling you to find ways to increase your income so you can sustain the lifestyle you want while achieving your financial goals.
Getting rid of your debt isn’t an easy task. Don’t try to tackle it alone. Seek professional advice. Talk to your trusted friends and colleagues. Hey, reach out to me if you want to. I’m more than happy to help you out in any way I can.
I want you to achieve your financial goals this year. I want you to get rid of your debt so you can build wealth. I want you to be excited about this process so you can attain financial freedom.