A Way Out of Debt

If it wasn’t for debt, my wife and I would have been homeowners a lot sooner. We had made the decision to buy a house and were exited to start looking. We found the house we wanted and went to the bank to get a loan but we were denied. Our debt to income ratio was too high. We needed to pay off our debt first. It was overwhelming thinking how we could come up with the extra money to get our debt paid off fast enough to buy a house in a year or so. It seemed impossible, but it’s completely doable. Here are some tips we used to get out of debt in less than a year.

1. List your debt - This was the good thing that came from the bank. The credit check report showed us all the debt we owed and to whom we owed it. You don’t have to use a bank for this just make a list of each debt, the name of the company you owe the money too, how much money you owe to the company, and the contact numbers to get in touch with that company. Having a list in front of you to see where you stand will really help. Plus, it’s always nice to mark out that debt as you pay it off.

2. Budget – Create a budget. Write out how much money you bring in and then list all the money you have going out. Get an average of what you need for each bill each month. It was surprising once we had our spending habits on paper. This step for us made the biggest difference. We still do this to this day and will continue to do this. Once you have everything laid out in front of you, how much you make, how much you spend, and how much you owe, see if there is anything you can cut out or back off on. For us having a set grocery budget and not eating out as much saved us a good amount of money. Be honest with yourself and don’t forget things like oil changes, school/sport pictures, field trips, etc. After you get your plan together and you know how much you are spending and where, stick to your budget! That is was the most important part.

3. Stop creating debt - I think that this is self-explanatory. While you are trying to pay off your debt it is counter intuitive to keep spending money you don’t have. Don’t use credit cards to pay off other debts, all you are doing is transferring your debt.

4. Snowball your money – Pay the minimum on all of your payments (this should be figured into your budget). Then any extra money you have pay it towards the lowest debt. Once that debt is paid off use the minimum payment amount you were using for that debt along with any extra money towards the next lowest debt. Continue this snowball pattern until each debt is paid off from smallest to largest.

5. Start a side gig - You could get an extra part time job. You could sell things around your house you don’t need. If you have a talent, try and use it to make money. It doesn’t have to be a permanent thing, just something to generate some extra money to help you get debt free.

6. Use extra checks - If you get paid every 2 weeks then at least twice a year you will get a 3rd paycheck instead of the 2 you usually get. You’ve already budgeted to use 2 pay checks a month so put that 3rd pay check towards your debt.

7. Use left over budget money - If you budgeted for more than the bill came out to be that month use the left over. Let’s say you budget $100 for electric but the bill only came out to $90. Use that extra $10 towards your debt.

8. Raises - If you get a raise, instead of upping your budget put that extra money each month towards your debt.

9. Settle - Once you have a budget you know how much extra you are going to have. If you have a bill in collections call and ask them if they would take a settlement amount. For us we found they usually gave us about a 10% - 20% discount if we paid the debt off. It’s worth a call to find out.

It’s a long process but if you stick with your plan you can make it happen. It’s very rewarding to pay off your debt, and there is no better time to start then now.

A Vision for Your Life