Being in debt is not an easy way to live, but yet it is all too common. Unfortunately, the ease with which a person can apply for and receive a line of credit is only inflating the situation. Matter of fact, in the U.S., we have more credit card debt now than ever before. So, how can we pay off debt and start living the life we were meant to live?
Are YOU a Slave to Debt?
There is a verse that has completely changed the way that I look at debt. It states “The rich rule over the poor, and the borrower is SLAVE to the lender” (Proverbs 22:7, NIV). I don’t know about you, but I do not want to be a slave. I want to have the freedom to do the work that I choose and not be tied down. If this strikes a chord with you, let’s get started on tackling that debt!
Write it down
As part of my first post in this series, I instructed you to write down each debt and to write down the amount owed. I want you to take this a step further and write down how much interest you pay each month and any fees if you have them and the minimum monthly payment due. This is important to know as it will help us in the next step.
Feel free to write this on a sheet of paper, a white board, or on your budget. You will need to keep it in your face though so that you are reminded of it. The point of this is not to make you feel shame, but to make you inspired each day to do something about those numbers.
Now, rearrange your debts from least to most down your paper. Be sure to write what debt it is, the minimum payment, and the interest rate beside it. It may look like this:
Furniture card: $335 no interest until June of next year, then 24.5%, $50 min.
Payday loan: $617 45% interest $120 min.
American Express $1234.56 13% interest $37 min.
Car loan: $10,000 6% interest $467 min.
Home mortgage: $125,000 3.5% interest $885 min
These are examples, but you get the picture. You may have a few more or a few less than I showed, but the point is to put them in order.
You will be focusing on one debt at a time starting with the debt with the least amount IN MOST CASES. There are some loans that need to be paid off ASAP.
Furniture loans tend to do this tricky scheme where they charge “no interest for the first 12 months”, but then if the debt is not paid off within those 12 months they will charge interest…to the entire original loan amount. Not just what is left over. That is in the fine print. Don’t be subject to their schemes, pay it off before the end of that “free period”.
Payday loans are one of the biggest scams out there. It makes me irritable every time that I see them (on every street corner!). Their exorbitant rates keep people broke. If you have one, pay it off now and vow to never do it again.
In my example from above, I would be paying off the payday loan first because of the HIGH interest rate, but keeping in mind to pay off my furniture loan before the end of the “free period”. Then my Express card, car loan, and last would be mortgage.
The key with this is to just pay minimum amounts on everything EXCEPT for the debt that you are focusing on at that time. Once that first debt is paid off, you will take that payment and add it to the next debt which will give you more momentum to pay off debt.
“The journey of a thousand miles begins with one step” Lao Tzu
Even when progress is slow
At first, it may seem like this is an incredibly hard journey. You may feel like you are getting nowhere. Remember that even an extra dollar each week will help you pay those debts off faster. As you pay off the smaller debts, you will begin to pay off the bigger debts quicker. That momentum is amazing, but it will take time and effort to get there. You can do it! Check out this post for tips on staying motivated when paying off debt.
Pay off debt
I know how debt feels. It can feel like you are drowning in it. Debt can make you feel like your life revolves around that and that only. It makes you feel like a slave. I never want to be there again and I want you to join me in this freedom. So go and write out your budget then write out your debts, prioritize them, focus on the first one first, paying minimums on all of the rest, and keep your head up! You can pay off debt! You will feel the sun shine on your first debt free morning soon:)
Do you have any questions about your debts? Need help prioritizing them? Shoot me an email!