As of the third quarter of 2022, Americans hold $925 billion in credit card debt, which is a rise of $38 billion since Q2 2022. The Federal Reserve of New York says this is a 15% year-over-year rise – the biggest jump we’ve seen in more than 20 years. That’s not even touching on other common forms of debt (student loan debt is in the trillions)!
So, what does that mean for you? Well first, if you have debt you’re not alone. Second, if someone like me can get out of credit card debt, so can you. I don’t want to play games with you though…paying off debt doesn’t happen overnight. You must get your head in the game and be ready to see this goal through. Once you commit to that, follow the 5 steps below to ditch your debt once and for all.
Ditch Your Debt in 5 Steps
#1 Get clear on the details of your debt
I see it all the time. People are afraid to acknowledge what their situation looks like. They know it’s bad, but they don’t want to know how bad…so they don’t look. Not looking doesn’t make it go away. In fact, not looking makes it worse. So, I need you to put your big girl pants on and get clear on the details of your debt.
What does that mean? Well, start by creating a list of all your debts. Include the type of debt, lender, balance due, minimum payment and interest rate. You can also purchase my Debt Reduction Kit to help you manage and organize everything. Sometimes, having that initial template can make all the difference.
The Debt Reduction Kit features:
- How to mentally prepare for dealing with debt
- Getting your budget ready to pay off your debt
- Monthly Debt Recap List Template & Debt Reduction Plan Tracker to help you assess your debt and track your progress
- A detailed guide on how to properly use your trackers
- Advice on staying motivated through your debt-free journey
- Tips on how to deal with budget adjustments
Now keep in mind, all we’re doing here is getting clear on the details. I’m not asking you to assess. I’m not asking you to take action. Let’s just see what you’re working with and then we can move on.
#2 Review your budget to determine how much EXTRA can go to debt
Before you can start paying down your debt, you need to know how much extra you can actually afford to pay towards debt. That means you’ll need to look at your budget. After all of your bills, expenses and spending are covered, what do you have left? Does anything need to go to savings? Okay, what do you have left after that? Whatever that number is, that’s what you can afford to add to your debt as an extra payment.
If you put more towards debt than you can afford, you’ll end up needing to use your debt to get by. Remember, we’re on this journey for the long haul. Do it right from the beginning so you don’t have to be here again.
#3 Make sure you have a savings before aggressively paying off debt
Another thing you’ll want to have in place before aggressively paying down debt is a decent savings. I’m not saying you need 3-6 months’ worth of expenses saved, but you do need something. Here’s why. If your car broke down and it would cost $700 to fix, what would you do? If your budget is already as tight as it can be and you’re sending everything to debt, you’d be forced to use a credit card – especially if you had nothing saved. That’s what we want to avoid.
We want you to be able to handle an emergency with your savings with no impact to your budget or your extra debt payments. That means you’ll need a savings! I recommend starting with $500 to $1000. At the end of the day, you should feel comfortable with the amount you have saved before your focus on debt. Check out the article Should You Save Money When You Have Debt for more.
#4 Lock your credit cards up
Do not be one of those people who convince themselves they need to keep their credit cards with them “in case of an emergency”. That’s what your savings is for! Keeping your credit cards in your wallet makes it WAY too easy to use them. Even if you accidentally grab the wrong card, it’s still a habit we want to break.
One of my clients put her credit cards in the freezer. Another one has hers locked up in a safe. Another client cut hers up altogether! The point is to put your credit cards away and out of sight, so you’re not tempted to use them. I promise, things aren’t that bad that you need to always have them with you.
#5 Reward yourself for small wins
Paying off debt requires a commitment. It doesn’t happen overnight. When the going gets tough, vow to get going. Vow to see your goal through. However, don’t be afraid to reward yourself for small wins on your journey. If you made it through your first month of extra debt payments with no issues, treat yourself to a Starbucks coffee!
If you’ve paid a card off, host a mini-party for yourself! When you can reward your accomplishments on the way to your goal, you make the journey that much better. You also remind yourself of what you’re capable of. Imagine when all the debt is gone. What amazing things will you do for yourself then?!
Related: How to Tame Your Anxiety from Debt
Notice how none of my tips suggested balance transfers or consolidations. That’s because 78% of people who consolidate debt rack it right back up. Don’t be that person. Don’t take the [easy] way out that avoids you fixing the true issue. Get clear on what caused you to go into debt and address that core issue to ditch your debt once and for all. That will help you ensure that when your debt is fully paid off, it’s not coming back!
Check out the CGS Podcast for My Debt Free Story and What I Learned from it! Are you currently on a debt free journey? Share your tips and experiences with the community by posting a comment below!
