Creating a Debt-Free Action Plan
In 2007 my marriage failed and my finances took a huge hit. In addition to losing my home, I was struggling with a lot of debt from credit card debt, a car loan, and student loans. It took me a while to figure out that with all the debt I had I would never get ahead financially.
Commitment
In 2008 I committed to getting out of debt and just under three years later I achieved that goal. I’ve lived debt-free since 2011. It was hard and took sacrifice, but being debt-free has allowed me to live in the way that I want to live.
Here is a strategy you can use to become debt-free. This is the method I used and recently learned that it is called the avalanche method.
Avalanche
· Create a spreadsheet that includes all your income and expenses. If you don’t want to create one you can find free spreadsheets on the internet. Knowing where you are starting will be a big help and having a record of your progress can be a big boost when you get off track.
· Figure out the highest interest rate loan you have and commit to paying it off.
· Pay all other loans at a rate of minimum payment plus a little extra. If you can afford $10.00 over the minimum do that for all your loans except the highest interest rate loan.
· Figure out where you are spending needlessly. For example, are you subscribed to multiple streaming services? Stop. Read books from the library or find free services. Add up all the money you are saving each month and use that as a payment for your highest interest rate loan.
· Stop dining out. Cook food at home. You won’t have to do this forever, this is a financial diet and it only lasts while you have debt. Figure out how much you spend on dining out each month and apply that amount to your highest interest rate loan.
· Stop using your credit cards-TODAY.
· Once you have paid off your highest interest rate loan, apply all the money you used for that loan to pay off your next highest rate loan. Add the amount to your ongoing minimum payment plus the little extra you added on to the minimum ($10.00 example).
· Continue on in this manner by adding the amount of your higher interest rate loans to the next highest rate loan until all your debt is paid off.
Here is what that looked like for me-
My highest-rate loan was a credit card; I paid about $700.00 each month until this credit card was paid off. I also applied any unexpected windfalls to this debt, for example, tax returns or bonus pay from my job. All other loans were paid at the rate of the minimum payment plus $50.00.
When my highest rate card was paid off I used the $700.00 to pay towards my next highest interest rate loan, my car loan, plus the minimum payment plus the extra $50.00.
When my car loan was paid off I paid off my student loan using the $700.00 plus the minimum for the car loan plus $50.00 and coupled this with the minimum payment plus $50.00 for my student loan. In this manner, I was able to pay off all my debt in just under three years.
Snowball
Another method people use is the snowball method which is essentially the same except that you pay off your smallest loan first and then work your way towards the larger loan.
The advantage of the avalanche method is that you’ll save money by eliminating higher interest-rate loans first. The advantage of the snowball method is that you’ll have success sooner and that can be a big boost in motivation for some people.
Live debt free
However you decide to pay off your debt know that being and living a debt-free life is fantastic. Without debt I’ve been able to make choices I otherwise would not have made. For example, I’ve decided to pursue a writing career. With no current income, I’m living off what I saved over the years being debt-free. Imagine having the confidence to leave your place of employment in order to pursue your passion. What would you do? The sky is the limit.
Sacrifice
I did make sacrifices over the time when I was paying off my debt. I moved to more and more affordable apartments so I could use more of my income to pay off debt. In fact, I moved 5 times in three years. That was tough, moving is a drag. But I was able to reduce my rent by $800.00 a month just by moving. I didn’t have the best apartment with the most amenities, and the neighborhoods weren’t as desirable. But it was worth it to give up on-site gyms and swimming pools in order to have control over my finances.
I stopped using my credit cards during that time. Learning to live below my means has helped me become more mindful in other areas of my life. I meditate now and practice yoga. I eat plant-based (by and large) and take positive steps to manage my health. Getting out of debt taught me that I can do anything that is important to me if I focus on what I want.
Freedom from worry
The outcome for me is a sense of freedom from worry over finances. I hated it when the bills would come and I had to scramble to figure out which would get paid on time and which bills would have to wait until I got paid again. Having control feels way better than a sassy new handbag, and I really don’t care if anyone thinks I’m fashionable. I care about spending every day doing the things I love and feeling like there is nothing that can stop me from having the life I want.
If you want to learn more about frugal living buy my book, “Never Worry About Money Again: Gain Financial Freedom By Becoming Better At Managing The Money You Have”
