4 Simple Steps to Paying Off Debt Fast.
Debt is a major problem that a lot of us don’t even think is a problem until it’s too late. Banks are all too willing to lend us money that we don’t have, and we should be reluctant to spend it. But we’re not. Everyone should be focused on paying off debt fast, before it’s too late.
The International Monetary Fund recently released a report that stated that Canadian household debt is at an all-time high. Canada has one of the fastest growing high levels of debt. It’s so high, it’s debt growth is the second highest in developed countries, right behind Australia.
Once you’re deep in debt, you find yourself falling behind and not able to pay down those bills anymore. It may seem impossible to get that debt paid down and the thought of bankruptcy might cross your mind.
Bankruptcy is well known option to most people, but there are many other options to get that debt off your back. Many that you may or may not be familiar with.
When I was faced with a debt problem..
Just a few months ago I was making credit card payment that matched my interest charges on my credit card. I realized that I was basically just giving my money away to the credit card company.
This was not a nice realization.
I immediately started to think of ways to pay off my debt, and my first thought was to get a second job. I have a kid to take care of, so that was not a viable option for me.
I then began to do some research, and found the key’s to paying off my debt fast!
(After note: As I was writing this, I realized just how basic this all sounds.. But it really is that simple. It’s the will power you need to conjure that’s the hard part.)
The best steps to take to pay debt fast
1. Review your financials
If you don’t watch your money your bank account can be leaking cash. By this I mean, that not having control of where your money’s going, small purchases add up fast. A $2 coffee every Monday-Friday adds up to $520 a year! I’m not saying quit buying coffee, you just need to know if you can actually afford it.
To gather a full review of your finances, just follow these simple steps:
- Gather your credit card statements, bank statements, and every copy of loans that you might have.
- Categorize each payment you make into areas such as restaurants, coffees, rent, gas, entertainment, etc.
- Add the money you spent in each category and review it.
Some of the categories might seem ridiculously high, and if you haven’t been watching your spending most of them probably are pretty high.
Before you can get a handle on your spending, you need to know where all your money is going. Once this is done, move on to the next step.
2. Start making cuts (Snip, Snip!)
This is one of the hardest things that people have trouble doing. It’s the time that you need to figure out what it is that you need, and what you are buying that are just wants.
Eating McDonalds once a week? It should be pretty obvious that you don’t need that.
Kids are attending a private school? As much as you’d like to believe they need it, they don’t! I know it’s not fair for your kids to suffer due to your poor spending choices. But if you can’t pay your bills in the future (Which is possible if you don’t control your spending), there’s a good chance they won’t be attending private school for much longer. It’s better to get a hard start on it, especially if they’re at a younger age. It makes so much more sense to put them through public school, so you can afford to put them through university or college!
If you need helping finding ways to save
If you can’t find anywhere to cut spending, or not enough places; This might be the time to seek out a financial planner. Make sure to look for a financial planner with a CFP designation. A lot of financial planners started their careers simply by once being in debt themselves, and can help you understand your alternatives to save money.
What I needed to cut were my internet and cable, newspaper service, eating out, drinking (which wasn’t all that much), Netflix, extra phone line, and stopped buying clothes and just started having them repaired at a tailor for $5 a repair!
3. Write out your debt payment plan
Now that you know where you’re spending your money, it’s time to figure out how you’re going to pay off your debt.
Start by writing out every date for the next year that you expect to get paid, and fill in the amount you expect to get in beside it.
Once you’ve got that done, start filling in the absolute necessities that you need to pay. These include rent/mortgage, groceries, utilities, and insurance. Once you’ve filled those in, start adding your recurring payments in, such as membership dues, movie services, cell phone, and small loans.
Once you’ve got all that listed, it’s now time to see how much money you have leftover to put towards your debt.
It’s important to leave yourself a little bit of extra money for purchases that might surprise you. Originally I set this at $200 a pay, but realized I don’t need that much, and chopped it down to $30 a pay. What a difference that made to paying down my debt fast!
When you’ve figured out how much you can put towards your debt each pay period, add up all your payments and calculate how long it will take to pay off your debt. Now start cutting out some monthly expenses like Netflix and Internet, and see how much faster you can have your debt paid off. Watching your debt being able to be paid off faster is a strong motivator to start cutting non essential services.
Anytime you have leftover money, or bonus money coming in it should all go to your debt! You’ve got your debt payment plan figured out, so you don’t need that extra money to spend!
Once you’ve got your debt paid off, celebrate with those around you. And I’m not talking about maxing out your credit card!
Go out for a nice supper in celebration of paying off your debt. It may cost you upwards of $200 to do so, but with all the hard work you’ve done; It will be worth it!
4. Start living frugal
Now that you’ve got your debt paid off, and you’re back in control of your finances, it’s time to start being money smart.
Some of the wealthiest people, don’t look like the rich folks you see on TV. The smartest money people drive 10 year old cars, and live in small houses. This is not because they’re cheap, but because they’re frugal.
Frugal is all about only buying what you need, and not what you want. It’s making sure that you have the money to buy what you want when you need it, and not taking out a loan to buy it.
We’ll touch more on frugality throughout the website, as it’s one of the best ways to make sure that you maximize your savings to maximize your wealth!
That’s The Basics!
These are the basic steps to paying down your debt fast! Make sure you stay tuned to Alpha6, so that we can help you understand how to save money, and to get your money to start working for you!
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