Debt is a familiar burden most Americans face daily. Whether the debts are small or large, many are becoming fed up and joining a movement to pay off debt and reach financial freedom.
If you’re one of those looking for a way out of debt, it’s time to put together a debt payoff strategy to set you up for success.
Links:
- Get your budgeting tools on our TCU University resources page
- Watch our pre-recorded financial freedom webinar for a more in-depth explanation of this debt payoff plan
- Check out our upcoming events for new webinars and workshops
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- Learn more aboutTriangle Credit Union
Transcript:
Welcome to Money Tip Tuesday from the Making Money Personal podcast.
Getting out of debt can be overwhelming. Staring at a large number, wondering how in the world you’ll be able to pay it off, is enough to make anyone want to give up and say, “Never mind.”
But debt and the burden it brings does not have to haunt you forever.
With a simple, five-point plan, you can tackle that debt burden and finally get onto a path that will eliminate it forever. This plan breaks the debt payoff journey down into manageable, actionable steps to stay on track to meeting your goal.
Step one: Acknowledging you have a problem
Debt is no different than any other personal challenge we face. Once we determine the problem affecting us, then we get the resolve to do something about it. Is your debt affecting your mood? Your relationships? Your health? If you answered yes to any of these questions, it’s a burden in your life that has to go. Be honest about where you are now and where you want to be.
Acknowledge all your debts. Then list them all from credit cards, personal loans, student loans, medical bills, car payments, everything. With it all out front and visible, it’ll be easier to assess how much work you’ll need to put in to pay it off. With the debt problem illuminated, it’s time to move to the next step.
Step two: Resolve to do something about it
This step is where you take ownership. You’ve admitted you have a debt problem, and now it’s time to do something about it.
This step involves finding all the information needed for a proper strategy. Seek out resources that provide education and insight into solving your problem. If that’s a trustworthy friend or professional, a webinar, online course, book, or even blog, take that first step of resolving to commit to this journey.
Step three: Create your plan
This step is all about laying out the strategy you’ll follow, and the very first step in this plan is to create a budget. Know your income and expenses and put them all onto a budget sheet. This process organizes your money into categories so you can see all the money coming in and going out. If you need access to a budget sheet, we’ll link to one in the show notes you can download and use.
Within the budget process, determine to put any extra income towards debt. That means you'll need to pause additional spending on fun and other frivolous things for some time. Put all your remaining money towards that debt pile to reach that debt-free goal sooner.
It’s also essential to choose the order in which you’ll pay your debts off. Many people use one of two popular debt payoff structures for this – the debt avalanche or debt snowball.
The debt avalanche method involves paying off the highest-interest debt first, eventually working down to the lowest-interest debt. The debt snowball consists of tackling the debt with the smallest balance and then working up to paying off the largest balance.
The principles of both plans are the same. Tackle one debt with any extra money while paying the minimum balance on other debts. Once one debt is paid, use that money that you had been paying to pay off debt to the next one—keep doing this same process until all debts are paid off.
Step four: Execute your plan
This step is where the rubber meets the road. It’s time to act upon everything in the plan. Find a trusted person to hold you accountable throughout this process. If you decide to stop using credit cards, this is where you’ll cut them up. Establish your target date to be debt-free. Do you want to be out of debt in a year? Maybe two? This number will differ for everyone depending on the amount of debt and their net income.
If you’re looking to work an extra job or hours, this is the time to start. Start working out your debt reduction plan, whether the debt avalanche or the debt snowball method.
Step five: monitor your results and repeat
This step is the only way to determine if your plan is working. Keep an eye on it and monitor it regularly to stay on top of it.
Print out your sheet or save it somewhere you’ll see it daily. Putting it on a poster is a super effective way to keep it top of mind. Tape it to a bathroom mirror, bedroom mirror, or fridge to keep it visible.
The key is remembering it. You want it to be a daily reminder of the goal you set for yourself.
Check-in on your progress regularly. Weekly, monthly, however frequently you think is best.
With these five steps, you can tackle almost any challenge, debt being one of them.
If you’d like to dive deeper into these steps, check out Triangle’s Paying off Debt webinars, which are available to join live throughout the year or watch them on-demand on our YouTube channel.
If there are any other tips or topics you’d like us to cover, let us know at tcupodcast@trianglecu.org. Like and follow our Making Money Personal FB and IG page, and look for our sponsor, Triangle Credit Union, on social media to share your thoughts.
Thanks for listening to today’s Money Tip Tuesday. Check out our other tips and episodes on the Making Money Personal podcast.
Have a great day!
