How to pay off debt in 3 easy steps
Average Household Debt
We Americans were sold a ‘dream’ that, for most of us, has actually proven to be a financial nightmare! We were taught that once we graduated high school we were to get a college education, find a decent paying job, get married, buy a house, raise kids, and retire at 62 and die sometime later. While these benchmarks may very well be part of almost everyone’s journey, the majority of us Americans will dig ourselves so far into debt that we will end up working in jobs we don’t like to pay off cars we couldn’t afford, weddings that we financed on credit cars, and student loans for majors in college we likely do not even use in our current professions. Here are the staggering numbers for the average per person consumer debt we hold reported by TransUnion Consumer Wallet Study in 2014.
$5100 Credit Cards
$16,917 Auto Loans
$29,575 Student Loans
Like I mentioned above, most of us will experience these life benchmarks but not all of us will be in debt up to our ears after. The difference? Learning to live within your means and only pay for things with the cash you have.
Paying Off Debt
But here you are! Along with the other 8/10 Americans living paycheck to paycheck. You are not alone! And you can get out of this. It will take some intense focus and endurance but if you follow the plan below you can come out from under that debt.
Create a budget
In my previous post I explained how to use every dollar of your income to create a plan for your spending.
List debts smallest amount to largest
This is where you list your debts from smallest to largest and pay the minimums on all the debt but the smallest amount. On the smallest one you are going to take all the money you can find in your budget to pay it down and pay it off as quickly as you can. Once that debt is paid off, then you will roll that monthly payment onto the next smallest debt until that one has been paid down and paid off. Repeat until all your consumer debt is paid off.
Cut up credit cards
Dave Ramsey says personal finance is 80% behavior and only 20% head knowledge. Your probability to become wealthy has more to do with your behavior than it does your sophistication or your academic underpinnings. Getting rid of your credit cards is saying, no longer will I continue the behavior of spending money I don’t have yet.
Debt can feel so overwhelming
When you are tens of thousands dollars in debt, it may seem over simplified to break it down this way but if you can be diligent about the steps above, you can beat debt and start your path to true financial freedom. Check out Dave Ramsey’s Debt Snowball calculator to see how long it will take you to pay off your debt https://www.daveramsey.com/fpu/debt-calculator .