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7 Simple Steps to Paying Off Debt

June 03, 2014

DailyWorth Expert

Certified Financial Planner, entrepreneur and CEO/founder of Financially Wise Women

financiallywisewomen.com

When you combine the right mindset with a tactical game plan, not only can you pay off your debt faster, but you can actually enjoy the process as well. That may sound like a foreign concept, but by keeping a positive mindset and celebrating your successes, you’ll find it’s easier to pay down your debt and to reach your other financial goals as well. Don’t underestimate how powerful your mindset is or forget that you have the power to choose what you want it to be with your money. Once you’ve changed your beliefs, you can change your behavior. 

Here are 7 simple steps:

Acknowledge the Debt You Have

A lot of Americans have debt but still may not be very clear on how much debt they really have or what type of debt it is. Look at your debt and get very clear on what you owe, what type of debt it is, and the annual interest rate and minimum monthly payments. You cannot afford to not know this information. 

Accept the Debt You Have and Forgive Yourself

Once you acknowledge your debts, a lot of emotions can arise: shame, guilt, regret, anger. All of these emotions are normal. You don’t need to give any unnecessary meaning to the debt you have. You are not a failure, and you are not a bad person because you have debt. Choose to look at the debt as neutral and a learning lesson in life. Forgive yourself for having debt and decide to move forward from here on out.  

Focus on the Present

Focusing on the present will release you from anxiety around your debt. Remember that you are not your debt. Have the intention to stay present with your debt and do your best paying off your debts in the most efficient way. By staying in the present with your debt, you can check in with your emotions and make sure you are bringing positive energy into the debt reduction plan.  When you notice fear or anxiety come up, simply acknowledge those emotions, feel them and let them pass through you. 

Create a Game Plan

Once you have your list of debts, determine if you will follow the Avalanche Method or Snowball Method for your debt reduction game plan. With the Snowball Method, you start by paying the minimum on all debts and allocate additional debt payments toward the debt with the lowest balance. This method allows for immediate gratification, motivating you to keep working on paying off your debts. But because the debt with the lowest balance may not necessarily be the one with the lowest interest rate, you might not be saving as much interest over time using this method. However, since a lot of financial success comes from your behaviors, this method allows for some quick wins—which may help you stay motivated over the long haul.

The Avalanche Method suggests that you allocate any additional debt payments toward the debt with the highest interest rate while simultaneously paying the minimums on the rest of your debts. You continue this method—adding the entire additional payments to the debt with the highest interest rate debt—until the debt is completely paid off. Then you move to the next highest interest rate debt and allocate any additional debt payments toward it while still paying the minimums on the rest of your debts. Mathematically speaking, this strategy will save you the most money over time, since you’ll be paying the higher-interest debts before lower-interest ones.

Make Additional Payments

Look at your income and expenses every month and decide how much money you can realistically add toward making additional debt payments given your other savings goals. If you find that you are falling short or living paycheck to paycheck, then you will need to either cut back expenses or make more money so that you can begin to add extra toward your debt payments. There are lots of ways to increase your income (i.e. you can ask for a raise or do work on the side), so stay creative and find what works for you.

Remember it’s Temporary

Nothing in life is permanent. Remember that the debt you have is temporary and can be eliminated with the right mindset and game plan. 

Celebrate Mini Milestones

As you work toward paying off your debts, remember to celebrate the mini milestones along the way. You can celebrate every time you reach a new benchmark (i.e. you pay off another $1,000 increment). Find ways to acknowledge your hard work. It’s important to stay motivated along the way. 

Brittney Castro is a member of the DailyWorth Experts program. Read more about the program here.

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