Do you wonder about those How to Get out of Debt posts? Wonder why you read them over and over but still struggle with debt?
You know, you can get out of debt. I’m not saying it will be easy. But I can show you how to get out of debt–and how to do it quickly if you want to.
You can take the slow path or the fast track; the important thing is to get out of debt quickly. Why? Because you’ll be happier, sleep better at night and be on your way to becoming a financial powerhouse. Ready?
Steps to Take to Get Out of Debt Fast
Here’s the deal: you CAN get out of debt fast. However, you need to be prepared to work at it. More than anything, getting out of debt requires discipline.
Yes, there are things you need to know. That’s the easy part. Doing the things you learn–that’s the difficult part. But let’s start with the steps.
1. Know Your Numbers
This step is tough, but it’s necessary because it will give you a starting point–and it’ll be a GREAT reminiscence when you celebrate debt freedom.
Make a list with four pieces of information:
- The name of who you owe
- How much you owe them
- What your minimum payment is
- The interest rate you’re paying on the loan or card
Make your list in order of smallest debt to largest debt. Include every debt–even if it’s $50 you owe the doctor or $500 you owe your parents.
Why? Because they all matter, and they’re all going away. It might not feel like it, but even the little debts are subconsciously hanging over your head like an anvil hanging on a chain.
Even if you don’t realize it, they stress you out, day and night. They affect your spending decisions and your inability to save.
And that inability to save is what keeps you using your credit cards again and again. But together, we’re going to change all that, so take heart.
Don’t Be Intimidated by Your Debt Levels
Just write your list and don’t worry about what the numbers look like. I understand that many of you are facing some huge debt numbers.
That’s freaking terrifying, and I totally understand. When I unexpectedly faced raising my four kids alone (my ex had long dealt with on-and-off abuse and addiction issues–and they got out of hand), I was a stay-at-home mom with a meager income (part-time writer, 15k a year income).
By the time our divorce was final, I’d amassed 55k in debt from legal fees and raising the kids without enough money to pay the bills. Plus I had a 300k mortgage.
I know how scary it is to face your debt. But don’t be afraid. If I can turn it around, you can turn it around too. If. You. Try.
Write down your numbers. Face them. Think about how they got there. Think about your part in their accumulation. Yes–on some level, this is your fault.
Even if you have a spouse who accumulated all of the debt without your knowledge, you must accept some responsibility. Were you ignoring the shopping bags? Not doing finances together as a couple?
Not invested in your marriage enough? I don’t know, but you do know the underlying causes of the debt. Face them, accept them and get ready to move forward.
It’s time to create a better life for yourself.
2. Write Down Your Monthly Expenses
Even if you’ve never lived by a budget before, you’re going to want to live by one now. Here’s the deal: Budgets are empowering.
They’re the tool that’s going to help you get out of debt.
How? Because your monthly budgets will help you gain control over your money. It’s like reining in that unruly child–life will be SO much better when you’re in control.
Write down every monthly expense you have. If it’s a fluid expense like your electric bill, do an estimated average.
If it’s a fluid expense like your grocery bill, set a limit and be reasonable about it for your geographical area and family size.
Note: I spend under $700 a month to feed my family of five–and we eat a lot of organic food. My point in sharing this is to show you that you can probably spend less on food than you think you can.
Don’t forget monthly expenditures such as:
- Pet care costs
- Extracurricular activities
- Entertainment monies
- Eating out monies
- Work expenses
- Gift Expenses
And so on. If you have annual or semi-annual expenses such as car insurance, divide them by twelve (or six) and add the monthly cost into your budget.
You’ll Create a New Budget Each Month
Creating a new budget every month is valuable for most people. Why? Because you likely have different expenses each month.
A new monthly budget will help you get an idea of your minimum and maximum spending amounts. Keep your budgets so you can look back and see what you have to spend each month.
Hint: Make a budget line item for discretionary spending. Not a lot of discretionary spending–but some. You need to allow for some fun along your journey–especially if it’s going to be a long one.
Looking for budget help? Try You Need a Budget (YNAB).
3. Create a Spend Tracking Worksheet
I know–this sounds like a huge pain-in-the-a**. But I promise; once you get used to it, it will be no big deal.
I use an Excel spreadsheet because I’m old-fashioned and not super techy. You might want to use a more advanced tool, such as Personal Capital’s free budgeting and spend tracking tool.
It doesn’t really matter what you use as long as you’re tracking every single expenditure.
Why is this so, so important?
Here’s the deal: Almost everybody loses hundreds of dollars a month to what I call “the black hole of random spending”.
Let me show you what I mean.
When I first went back and tracked my previous year’s spending to see why I kept getting deeper and deeper in debt, here’s what I learned.
- My $600 a month grocery budget was really a $900 a month expenditure
- My $150 a month eating out budget was really a $275 a month expenditure
- I’d budgeted $125 a month for gas, but I was really spending $250 a month on gas
As I went on down the expenditure items on my credit cards, I found the same story over and over. Every single expense was two or three times higher than what I’d written on paper for my budget.
This is why budgets don’t work for so many people.
You can set budgets all day long, but if you’re not sticking to them, they’re no good!
Now, you can avoid having to spend track by using a cash envelope system for fluid expenses and PROMISING not to spend any more in a given subject category once the envelope is empty.
Or you can spend track to find out where your “black hole spending” leaks are. But you have to commit to doing one or the other if you truly want to get out of debt.
4. Assess Your Monthly Income vs. Expense and Adjust Where Needed
Okay, so you know where you’re at debt-wise. You’ve created your first monthly budget.
And you’ve created some type of spend tracking system. In an ideal world, you’ve got a nice cushion of leftover money to spend after your budgeted expenses.
Set that “extra money each month” number aside and wait for further instruction.
If you don’t have an extra cushion, you’re going to have to make some changes. The options you have are two-fold:
- Reduce your expenses
- Increase your income
Let’s start with ways to reduce your expenses.
How to Reduce Your Expenses
Scour your budget again and adopt a “challenge everything” mindset. Where can you trim expenses?
- Spend less on groceries?
- Slash your entertainment budget?
- Cancel gym, cable and other memberships?
- Spend less on clothing and personal care like salon visits?
Can you be more mindful when using electricity and water? Can you combine trips with your car so you’re not using so much gas?
What about carpooling to work? Or shopping around for lower car insurance rates?
If you look, I’m certain you can find ways to spend less each month. Are you panicking at that thought? I get it. Been there, done that.
Listen, I know adjusting your lifestyle to pay off debt isn’t necessarily. But think of it this way:
If you spend some time being super disciplined and getting your financial crap together, you can put yourself in a position where you can be much more carefree with your spending.
How does that sound? Good? I thought so.
Now let’s look at possibilities for increasing your income.
How to Increase Your Income
You might have to look at increasing your income if you’ve lowered your expenses as much as possible and still don’t have enough extra money left over at the end of the month.
Here are some ideas for increasing your income.
- Pick up some overtime hours at work
- Work to get a raise or promotion
- Get a second job (deliver pizzas, work as a server or in retail)
- Start a side hustle business
That last one, starting a side hustle business, can be great if you’re not interested in working more hours for someone else.
There are dozens of great side hustle ideas you can use. You can find ways to get paid using your hobbies to make money.
In fact, if you work hard enough, you can even turn your side hustle money into a full-time gig like I did.
5. Use Your Extra Money Wisely
Okay, if you’ve followed the steps above, you know what your debt load is, you’ve created a working budget, you’re tracking your expenses and you’ve got a bit of money left over each month.
If you want to get out of debt fast, you’ll do two things:
a. Create a starter emergency fund with some of your extra money.
This starter emergency fund is for the purposes of CYA (covering your a**).
From the unexpecteds. Car repairs. House repairs. You know: those unexpected expenses that seem to pop up and ruin your plans for debt freedom.
Make your started emergency fund anywhere between $500 and $2000. Just have some sort of a cushion and use it for EMERGENCIES ONLY.
(Hint: semi-annual car insurance costs are not an emergency. You knew they were coming: divide the cost by 6 and add it into your monthly budget. Then set the money aside so it’s there when the bill is due.)
(Note: some people say that car and house repairs aren’t an emergency either. Set aside some money each month to cover these things too. Then only use your emergency fund for things like job layoffs.)
b. Use your extra money to wipe your debt out quickly.
This part is really fun, because if you’re budgeting well and using all extra money to pay off debt, the debt will go really fast.
You’ve got your list of debts from smallest to largest if you followed step one. Start putting all extra cash toward your smallest debt, then move onward down the list.
Don’t forget to include unexpected extra money like work bonuses, cash gifts and tax returns. Put every dime you don’t absolutely need to spend toward your debt.
The balances will drop super fast and you’ll be debt-free before you know it.
6. Track Your Progress
Depending on your income and debt load, you might pay off your debt fast, or it might take longer to pay off your debt.
For this reason, you’ll want to track your progress. Make a spreadsheet or do whatever you need to do–just keep track of your journey.
This will help you stay motivated when you get bored or frustrated by your lack of discretionary spending.
7. Create a List of Whys
Want another way to stay motivated? Make a list of reasons WHY you want to be debt free.
In other words, why is this work and sacrifice worth the effort?
- Is the stress of your debt taking you down?
- Are you unable to achieve your dreams because of it?
- Is the weight of the bills creating strife in your marriage?
- Are you being forced to work more than you want to or at a job you don’t like?
Learn the reasons why you want to get out of debt. Then, revisit them when you’re having trouble staying motivated. Remind yourself that you deserve financial security!
8. Celebrate–Then Create New Financial Goals
Congratulations!!! You did it! You paid off your debt!!! Now decide what’s next. Will you save and invest until you reach financial freedom?
Create some passive income sources so you can quit your job?
Only you know. But I know one thing: you can do this!!