Author: Michael Leonard / Source: Lifehack
If you want to learn how to get out of debt, don’t worry, you can do it. Yes,
Getting out of debt isn’t impossible. Like any big goals, all that it takes is an action plan to identify where you are and create a plan to zero out your debt.
Identifying All of Your Debts
The first part of paying off your debt is getting a complete picture what you owe.
When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.Here’s how you can get started identifying your debts:
1. Own Your Debt
Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of debt.
Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first but you must own it.
2. Make a Debt Tracker
It’s astonishing how few of people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt; but if avoided, it can make it nearly impossible to get out of debt.
Open up a new Google or Microsoft excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any) and the minimum amount due each payment. This will include student loan, credit card, and any other type of debt owed.
3. Get Your Debt Number
Once you’ve made your debt tracker and taken the other steps, identify your total payoff number.
This is crucial as you will have a starting point and a clear goal that you are trying to achieve.How to Prioritize Your Debts
All debt is not created equal. It’s so important to understand there are different types of debt.
1. Understand Bad Debts and Good Debts
Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending.
There are three main types of bad debt:
- Credit Card Debt: The average American household owes over $16,000 in credit card debt!
- Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
- Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but still considered bad as interest rates are usually between 10-28% interest fees!
Good debt is identified as investments in your future. Here are three common types of good debt:
- Student Loan Debt
- Mortgage Loan
- Business Loans
2. Decide What Debt to Pay Off First
Once you know each type of debt and interest rates, you can begin to pay off debt quickly!
Focus on paying off bad debt first, regardless if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.
If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.
3. Don’t Pay the Minimum Amount
Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.
Remove Obstacles to Pay Off Debt Quickly
Creating a debt tracker and prioritizing a plan is simple but avoiding temptation can be difficult.
1. Set a Reminder to Track Your Debt
“If you can’t measure it you can’t manage it.” – Peter Drucker
It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder where you sign on and log your updated…
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