Whether you just graduated from university with a big student debt, are many years into a good paying career (with a side of expensive shopping as a hobby), or are a stay at home mom, getting out of debt quickly can be fun.
1.Pay off any outstanding high interest debt before you start saving.
Any debt (that’s not your mortgage) with an interest rate higher than 2% should be paid off pronto. Even if you have a great savings plan with your bank it’s unlikely to offer an interest rate of higher than 2%. That means if you’re paying a high interest debt, let’s say it’s 19% as most credit cards are, and you’re paying it down slowly while also trying to save, you’re paying more interest on your credit card than you’ll ever make in your savings account. My motto is pay off debt first and foremost, and then start saving.
Dave Ramsey, a well known personal finance mentor has a famous “snowball” plan, where you start by paying off the highest interest debt first, and most aggressively, while still making minimum payments on your other debts. Once that’s done, you move to the next highest interest debt, and pay that off. He has tons of fans that rave about it. If it will help you to stay motivated, I strongly encourage you to get his books on personal finance. Read them regularly, keep one on your night stand, one in your bathroom, one in your living room. This will help keep you motivated. Especially when you feel tempted to get back into debt.
Suze Orman is also one of my personal finance mentors. I love her no b.s. style, and her “Can I afford it?” question that she’ll drill into your head before you buy anything, ever again!
Hardship Level: 3/5 (The takes discipline. But it is 100% worth it).
2. Go to an all cash lifestyle.
That’s right, we’re going old school. All cash, baby. Until you have paid off your debt, and learned how to use credit as something sacred…you’ll have to move to all cash. If you run out of money at the end of the month, you won’t be able to put it on credit and keep yourself in debt longer than you need to be. Nothing will make you want to spend your money wisely than literally seeing your jar of money go down, down, down, until there’s nothing left. With credit you never see that, and that’s why it’s so easy to keep on spending.
Hardship Level: 1/5 (This takes discipline. But again, it is 100% worth it).
3. Put an extra 20% onto each loan payment. Double it if you can.
Any outstanding debt is literally keeping you from living a free, comfortable life where you can live happily without bills piling up. Make getting out of debt your #1 priority. There’s extra money that you don’t know you have that can be put towards paying off your debt. To make sure you actually find that money stretch yourself to put an extra 20% minimum onto each loan payment as soon as you get paid. If you wait until the end of the month, this will be impossible. You probably have
lots of money zero dollars left in your account at the end of every month.
If you’re not putting anything into paying off your debt, start putting 20% of each paycheque towards it.
Hardship Level: 4/5 (In the beginning this will feel like a 5/5, but in a few months this will feel like a 3/5, and when you start to make a serious dent in your debt, you’ll actually find watching your balance go down fun!)
4. Track your Expenses.
Using an app like Mint, you’re able to effortlessly track all the money that’s coming in and out of your bank accounts & credit cards. It even breaks down by category how much you’re spending, such as $100 on gas, $800 on groceries etc.
Unless you only have one bank account, chances are high that you’re logging into multiple bank or credit sites to get your bills, see how much money you have, or more. With Mint, it’s all in one place. Convenience is key in taking control of your finances.
It’s a great way to become aware of where your money is even going! That’s the first step in becoming “money aware”. First you need to know where it’s going, then you can find out what you’re not using and can cut, or what you can reduce.
Hardship Level: 1/5
5. Get a Side-Gig.
Work as a freelancer. Get a part time job on weekends. Start a babysitting service. Whatever you need to do, find a way to make more money. Put all of this money towards your debt. All of it!
This may seem like a crappy way to live, but if you are serious about getting out of debt, you’ll do it!
After university to pay off my student debt I waitressed at the Pickle Barrel one or two days a week, while working full time at my Marketing Coordinator job for a big ad company. I put an extra $500 towards my student loan every month, and was debt free in one year.
Hardship Level: 4/5
6. Find your reward!
What will you do to reward yourself once you’ve paid off your debt? Will you quit your side gig? Will you start saving for a wedding? Will you throw a party?
It’s a great idea to have a “carrot” for yourself at the end of the journey! Just make sure if you need to spend money on your reward, that you’ve saved up for it before you do it. You don’t want to go back in debt to finance your reward, right?
Hardship Level: 0/5
7. And for fun…enjoy FREE entertainment!
Staying at home and stewing over your debt is no way to live. So make sure you still have a life…just be smart about it!
There are lots of fun, free activities in every city that you can do by yourself, with your family and with your friends.
Check local city guides, Craigslist, Meetup, Eventbrite, Kijiji, and more to find out what’s happening in your area that’s free.
As an example, my local pool has free leisure swim on Friday nights, Saturday afternoons and Sunday afternoons. Why pay to go to the pool, when you can go for free? We parked for free on a nearby street, and swam for free for an hour. It was great and cost nothing!
Many grocery stores have cooking classes for free. There’s free open houses at art galleries. There’s tons of free stuff to do! You need to get out of the mindset that you need to pay to have fun, because it’s simply not true. It may be different than what you normally do, but it’s still fun!
Hardship Level: 0/5
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