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When someone has a large amount of debt, finding a way out can feel impossible. The scattered accounts, the interest rates and the stress of keeping up with the day-to-day expenses of life are enough to drive us crazy.
After interviewing around 100 individuals who have conquered their debt and moved onto building wealth, I’ve learned what it takes to say goodbye to debt forever.
Here are 10 life-changing steps that came up Repeatedly throughout my interviews:
1. Fully Commit to Debt Freedom
When you’ve simply had enough of your giant pile of debt, it is time to truly declare that you’re ready to clean it up. Tell your spouse, proclaim it your friends or even shout it out loud on an awesome podcast (shameless plug).
Most importantly, commit to yourself that you will make a change today.
Like any other monumental moment in your life, declaring your intention is the first step toward making the impossible possible. Commit to doing something incredible today.
2. Analyze Your Debts
Gather all the information about your current debts and lay it all out on the table. You want to understand two important details:
- Current balance
- Interest rate
If you don’t know how much money you owe or perhaps even who you owe, take advantage of the free credit report analysis and score from Credit Sesame. This service will help you get all the details on your current debts, past debts and even some open accounts you maybe weren’t even aware of.
3. Create a Budget
When you have your income and your expenses all laid out in a budget for the first time, you get a sense of control that you’ve never had before. This simple action will put you in charge of your money instead of the other way around.
I’ve used Mint for over 5 years to manage my family budget. It has helped my wife and I do some amazing things like communicate openly about our finances, plan our future together and even destroy our mortgage in less than 5 years.
If you’re more into spreadsheets than online systems, check out Tiller. It helps you easily track your spending and even synchs up to your accounts to make the budgeting process simple.
4. Choose Your Debt Destruction Method
Once you understand your debts and how much you owe, it’s time to destroy the enemy! (Sorry, debt. You’re the enemy.)
When you’re combating your enemy, you need a good battle strategy. Here are three to consider:
How does it work?
Line up all your debts from smallest balance to largest balance. Pay off the smallest one first, then move onto the next until you’re debt free.
Why does it work?
This is a proven method that keeps you motivated to press on. By getting a quick win, you’ll be excited to continue crushing your debt.
How does it work?
Line up all your debts from the largest interest rate to the smallest interest rate. Pay off the debt with the largest interest rate first, then move onto the next one until you owe no one a single dime.
Why does it work?
Where the Debt Snowball is more emotionally driven, the Avalanche works best for those us who see the benefit of paying less interest immediately.
How does it work?
Line up all your debts from the one you hate the most to the one you hate the least. Pay off the debt that makes you the angriest, then move onto the next one until you’re debt free … and happy.
Why does it work?
Paying off a boat load of debt is going to be an emotional marathon for you. By clobbering your biggest debt villain first, the ones that follow won’t seem so tough to beat.
5. Decrease Your Expenses
You might be saying, “This all sounds well and good, but based on my new budget, I’m spending more than I’m making!”
Congratulations! You’ve uncovered your first major problem to solve.
If you’re spending more than you’re bringing in, it is time for a gut check. Do you care more about Amazon Prime (or insert any other unnecessary expense here) than your debt freedom?
No? Then it’s time get rid of it.
Here are 10 quick areas that you could consider trimming:
- Groceries spending
- Cable package
- Cell phone plan
- Entertainment Subscriptions
- Gym memberships
- Expensive Hobbies (Golf, etc)
- Alcohol and Cigarettes
- Eating at Restaurants
- Non-essential shopping (decor, extra clothes)
- Amazon gadgets
How We Paid off $48,032 of Debt in 1 Year https://t.co/Jvk6f6JuXr
— Andy Hill (@AndyHillMKM) April 18, 2018
Related: How We Paid Off $48,032 in 1 Year
6. Learn to Say No
When you’re working on becoming debt free, you’re simply going to have to say “no” more. You won’t be able to buy as many things and you may have to miss out on some potentially fun upcoming events.
Realize though, when you’re saying “no” to some things, you’re saying “yes” to debt freedom. You’re saying “yes” to less stress, less worry and more control.
7. Increase Your Income
If spending isn’t your issue, then perhaps income is. It’s time to become a magnet for money.
Increasing your income is not only a great way to eliminate debt in the short-term, but long-term it’s the way of the wealthy. You might as well start practicing being a millionaire now because that’s where you’ll be headed if you keep it up!
One of the best ways to make quick money is with your current employer. If you’re exceeding expectations at work, ask for a salary increase. If you’re not exceeding expectations, you should start.
Additionally, consider a side hustle that brings in money during your free time (before work, after work, weekends). If you have a hobby that you’re passionate about, that could be a great place to start.
8. Realize This is Temporary
Will you always need two jobs? Will you never-ever get to play golf again? Nah!
This time of lack or season of hustle will last only as long as your debt is around. Once you’re debt free, you can bring back some of those expenses you have always enjoyed … just be sure it’s in the budget.
9. Celebrate Your Wins
Every time you pay off a debt, be sure to celebrate like you just won the lottery. You are doing something incredible here!
When my wife and I paid off my student loan and her car loan, we popped open a nice bottle of champagne and binge watched Breaking Bad. (yeah, that’s how we celebrate).
After we paid off our mortgage, we let our kids whack a piñata made from our debt papers. It was epic!
Find your special way to celebrate and then get ready for your next challenge. Be careful, you might just start to have fun with this crazy personal finance stuff.
10. Drink the Wealth Building Kool-Aid
Once you start clobbering all your debt, you may just realize how fun this. Building wealth, growing your net worth and creating a strong legacy for your family may just be one of the best things you’ve ever done.
Without any consumer debt in your life, what would you be able to do?
Think bigger. If you were financially independent and didn’t have to worry about your daily expenses anymore, what would your life look like?
How would this change your family tree?
How could your debt freedom allow you to make a difference in your community?
When you start to answer questions like this for yourself, a fire starts to burn inside. Your slight motivation begins to turn into a passionate desire for change.
This is when you start to realize how much fun it would be to be a master of your money.
Where are you on your financial freedom journey?
Please let me know in the comments below.