“A man in debt is so far a slave.” Ralph Waldo Emerson penned this statement in his 1860’s book The Conduct of Life. Over the last 5,000 years, debt has been a bain of human existence. In today’s fast-paced and electronic world, it often seems that we cannot move forward without utilization of our age-old nemesis; debt. According to Nerdwallet, the average U.S. household with debt carries $6,591 in credit card debt and $138,722 in total debt. For many, debt contributes to individual psychological stress and depression. We have all agreed that it’s terrible, but what is the fastest way to get out of debt?
When I started writing this post I Googled ‘how to get out of debt’ I discovered 38,200,000 results. Many of the articles I’ve read have been written with such ambiguity and vagueness that they were useless. And some the advice given borders on lunacy. So as a professional financial advisor, I am going to give you, for free, the list that I give all my (paying) clients.
The beginning point in most activates begins with a current assessment. Debt management is not an exception. An easy way to gain a comprehensive list of your outstanding obligation is to pull your credit report. Experian, Equifax, and TransUnion are the three major credit reporting companies. Most, but maybe not all, of your debts, should be reflected on these company’s reports. Personal loans, medical loans, or business loans, may not be reflected on your credit report.
Once you have a detailed list of your debts, you will want to write each of the debts down. In my practice, I use software like Excel for recording the obligations of clients. In this software, I can build a column for Balance, Monthly Payment, Interest rate, and Payment Date. I can also separate the monthly payment amount into principle and interest amounts. All of these items will be substantial in the next steps.
The word budget is often viewed as negative. My business partner even refused to use the word. Whatever term you wish to use, you will need to identify with great specificity your monthly income and monthly expenses. This requires painful work. Many of us do not fully understand how much money we make and where we spend our money. When we construct a budget, we gain much insight into our lives.
In a debt reduction plan, the goal is to build the budget in such a way that we are operating our lives with great specificity. Barebones budgeting, shoestring budgeting, and minimalist budgeting are all terms that are used to describe the type of budget you need here. The primary goal is to determine how much extra monthly income you have at your disposal to attack your debt.
Now that you have identified your extra money from your monthly income which you can apply to the debt, it is time to develop a payment plan. There are many methods that have proven tried and true. You may be able to select one of these methods, or you may feel like you can apply a combination of these methods to reach your goals. Whatever the choice, device and plan and implement! Here are a few suggestions:
Now that you have your debt reduction plan in place, you will want to find creative ways to generate additional money to apply to your debt. Here are a few suggestions:
Why are you working so hard to get out of debt? Is it freedom? Reduced stress? Additional monthly funds? To me, there is nothing more motivating than to place my objective in writing and then constantly remind myself of the goal. I’ve been guilty of putting index card all over the house, in the car, and even inside the fridge (hey, I’m there a lot). These constant reminders help me stay on track.
Debt can seem overwhelming, yet following these steps can help you eliminate the debt in a systematic and time efficient manner.