4 Empowering Steps to Free Your Life from Debt
Eleven years ago, my husband Jon and I were far from financial independence. We gave our daughter a bigger wedding than we could afford, and then we helped our son buy a car. We were happy to help, but we hated the debt.
We turned our lives around by setting out to conquer it.
Debt holds your future hostage.
Have you racked up student loans or a lot of credit card debt? Maybe you're burdened with medical bills, or you were out of work for a while and used credit to buy gas and groceries.
No one loves debt. It's painful to use current earnings to pay for things acquired in the past, and those payments reduce the money available for use today.
When you focus on the total amount you owe, the debt can look like a mountain. When you pay the minimum every month, and a large part of that payment goes toward interest rather than debt reduction, it's depressing. You might be tempted to give up, or to charge even more. "After all," you might think, "what's another few hundred dollars when I already owe many thousands?"
It might feel like you'll be trapped in debt forever.
Never fear – there's a better strategy. But first, there are a few things you need to do before you tackle your mountain of debt.
Prepare for a debt-free lifestyle.
Some debt is caused by situations out of our control, such as sudden unemployment or a global pandemic. Other debt is created by our choices. Either way, living debt-free requires some shifts in thinking and behavior.
1. Make a commitment.
Jon and I adopted a new mantra: "We don't use credit." If we couldn't pay for something with cash, we didn't buy it.
I won't lie – this was hard. We had each other for mutual support, so don't be afraid to recruit a friend who'll hold you accountable.
2. Watch your routines.
We changed some habits that cost more money than they needed to. Some changes were temporary and some became permanent. For example, we used the library instead of buying new books, and had friends over for dessert and coffee rather than meeting at a restaurant for dinner.
Reconsider habits like stopping for a Frappuccino on the way to work, paying for more than one streaming service, or "just browsing" at your favorite stores or websites. Question your impulse to grocery shop without a list, exercise at the gym, or order takeout when you don't feel like cooking.
3. Reduce interest charges.
If your credit score is good, you'll save money by transferring at least some of your debt to a low interest card. A card with an introductory rate of 0% is ideal. Alternatively, if you've been a consistent, on-time payer, ask your current card company to lower your interest rate. We were able to do that with two of our cards.
4. Open a savings account.
Without savings, we continued to add to our debt every time the car went to the shop or one of the kids needed a sports uniform or new eyeglasses. Even $500 can keep you from having to use credit for those little emergencies.
Challenge yourself to save this amount as quickly as possible by selling unneeded items, cutting spending to the bone for a few weeks, or working overtime if you can.
5. Refocus.
Once you have $500, stop saving. "Putting money in a savings account that earns less than 1% interest while having a balance on a card with a far higher interest rate is plain dumb," says financial guru Suze Orman.
Now you're ready to concentrate on getting out of debt.
The 4-step debt-destroying strategy
This is how Jon and I succeeded.
1. Go high.
You lose more money every month on the debt with the highest interest rate because so much of the payment goes toward interest. The amount you owe inches down while the interest piles up. We're going to reverse that.
2. Pay extra.
Say your bank requires a minimum payment of $50 on that high-interest debt. And let's say you've cut expenses and are able to add an additional $50 to that minimum payment. You decide to make a monthly payment of $100 on this debt while continuing minimum payments on your other debts.
Commit yourself to putting that $100 toward your chosen debt every month. Keep that amount steady.
3. Ignore size.
Don't focus on the total you owe on this debt, but do pay attention as the minimum payment continues to decline.
When you review your statement each month, you'll notice the required minimum payment drops a little. Next month, it might be $48, but you're still going to pay $100. This means your extra payment is $52. The following month, the minimum payment might be $45, which means your extra payment is now $55.
As the months go by, you'll notice that this trend starts to accelerate. Since you've committed yourself to paying $100 every month, your extra payment continues to get larger, while the minimum payment shrinks faster each month. The interest portion of the payment shrinks too.
Focus on that trend. That's where you're going to see the progress that will keep you motivated.
Pro tip: You'll see even quicker results if you put any extra money (raises, bonuses, tax returns, income from a side hustle) toward that debt.
4. Intensify.
One day, your first debt is gone. If you still have other debts, take the $100 you were using to pay the first debt and add it to your payment on the debt with the next highest interest rate – your Visa card, auto loan, or the David's Bridal card you opened for your wedding two years ago. So far you've been paying the minimum on that second debt, but now you'll add the $100 – and hold that total amount steady for all future payments.
Each month, the balance on that loan will go down, the interest will be a little less, and your extra payment will be greater. Over time, those trends will accelerate. Pay attention to that, because that will convince you to keep making the extra payment rather than spending it on something else.
Eventually, that debt will disappear, and if you have another debt, you'll simply roll the entire amount toward paying it. By now, your extra payments are quite large, and the whole process is rolling like a freight train.
Finish with a kick.
This strategy (lots of people call it a "snowball") is like running a marathon, but instead of going at the same pace or even slowing down as you tire, you start speeding up. Don't consider how far away your destination is. Concentrate on how the total debt is getting smaller and the shrinkage is happening faster.
This does away with a lot of frustration, and can help when you're tempted to spend that extra payment or use a credit card. As your financial situation improves month by month, you feel victorious, confident, and in control.
And then, one day, you're free!
- discover your money beliefs and how they influence your financial decisions
- buy less and demolish debt
- make a budget that lets you focus on your needs and find a way to afford your desires
- feel empowered, not poor, as you control your spending
- increase enjoyment and satisfaction without spending money
- and more!
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