There are many articles relating to debt payoff and the steps one needs to take in order to get their finances in order to tackle their debt. I want to give a summary of them so they are in one spot. So below is your one stop shop at what you need to do in order to start making things happen in your financial life!
Mindset
The first, and arguably most important, step is to get your money mindset in order. Without making sure you have your goals set and aligned with your mindset, you will find that it is hard to be motivated to achieve your goals.
You must defeat any money demons in your mind that you have accumulated throughout your life. Debt payoff needs to become your main financial focus. The only way to do that is to come to terms with your spending habits of the past and start developing new habits that will improve your life.
Learn more about mindset with the article “The Debt Mindset.”
Understanding Your Debt
After you have your mindset in a good place, it is time to learn everything you can about your debt. There are many questions that you need to answer:
- What kind of debt do you have?
- What’s the balance of each loan?
- What are the minimum payments on the loans?
- What are the interest rates of the loans?
This information is necessary in order to make sure you have everything you need in your battle against debt. In the battle, knowledge is power, so everything you can learn will aid you in your fight.
Learn more about understanding your debt here.
Budgeting
The importance of budgeting cannot be understated. Building a budget, that is realistic and aimed at your goals, must be done in order to keep yourself in check. You must first understand where your money is currently going. I believe you should analyze your last 90 days of spending in order to get a clear picture on where your money is being spent.
Learn more from the article “What You Need to Start Your Budget.”
Once you have what you need, it is then time to prepare your budget. The budget must be realistic for you to have a chance at success. Income and expenses are equally important. This will be the basis for your finances going forward so you must be comfortable with the numbers. But you must also use it to change your spending habits. Areas where you have been spending like crazy must be kept in check. This is when you will truly start turning your financial life around!
More on budgeting can be found here.
Debt Payoff Methods
Now that your spending is in check and you have found ways to start saving money, it is time to start attacking your debt! There are two popular methods of debt payoff that focus on different aspects of your debt: Avalanche Method and Snowball Method.
They each have their benefits and many an argument has been had regarding which one is better. The truth is, if you are following either way, you are way ahead of most other people. Plus once you have an in-depth look at the numbers, there isn’t a huge difference between the two when all is said and done. Pick one and stick with it. You won’t be disappointed.
To learn more about the methods, check out my article here!
Life After Debt
You may be wondering “What’s next?” You focus all of your attention on your debt payoff. Then, suddenly, the debt is gone forever! A reason to celebrate? Definitely! But after the celebrations are over, a feeling of dread. “What do I do with all this extra money?” You think. You can’t go back to your spending ways after all the work you put in. Now is time to invest and start building up your net worth!
Start with the 401k plan hopefully offered through your job. Typically, your employer matches up to a certain point, which is a 100% return for your money which you won’t get anywhere else. Take it and run! Learn everything you will need to know about 401k plans here.
But what about your investment options? There are so many things to choose from, it can seem overwhelming! That is where the fantastic index fund comes into play! Buy into an index fund and own all of the best companies money can buy! Simple yet effective, the index fund is what most investors should buy into. Learn more here!
Debt Payoff
Well there you have it. A step-by-step guide to debt and financial freedom. It won’t happen as quickly as reading this article but if you follow the steps above and dedicate your financial life to improving your finances, you will make it. Most importantly of all, enjoy the journey. This is a time for you to learn everything you can. I understand the desire to fast forward 5 years of your life, when debt is no longer an issue, trust me. But its not worth it. Find the balance between debt payoff and the other goals in your life. Money shouldn’t be your main focus. Now go out and live your life!