Deciding to eliminate your debt is a very grown-up decision, but how do you actually get it done? With such heavy financial burdens weighing everyone down, how does anyone ever get out from under their debt? Make one plan and then an emergency happens. Make another plan to accommodate and then something else happens. It just never seems to end, and before long, you’re in a downward spiral and you will never be able to get out.
However, the truth is that you can get out of debt. It will take careful planning, patience, time, and fortitude. It will seem impossible at first, but on a long enough timeline, it will work. Establish a plan for yourself by following these eight (8) proven steps to eliminate debt.
Make a Budget
This is the first and probably most important part of getting out of debt for good. Set up a realistic budget for yourself (without penny-pinching) and then stick to it. It will seem difficult at times, but remember the end goal.
Create an Emergency Fund
Set aside a significant amount of money right away, just in case you get into an emergency situation. Let’s say this amount of $1,000. This is emergency money only, worked into your budget, that cannot be touched to spend personally or on debt (unless the debt itself is the emergency).
Prioritize your Debt
Start with the smallest debt and pay it off first. Then work your way up through largest loans. By crushing the smallest ones first, you’ll build financial capability faster.
Build Up Your Emergency Fund
After you have wiped out some smaller debts, it’s time to start padding the emergency fund. You’re gotten through on your budget so far, kept away from your emergency one (unless you did have an emergency), and now you’re ready to start working on savings. See if you can build it up to a full six months’ worth of expenses.
Invest in Your Retirement
At this point in the plan, you’re getting rid of larger and larger debts, which means that your personal finances are beginning to balance out. You can expand your budget slightly, or better yet, invest 15% into your retirement accounts.
Fund College/Higher Education Programs
Education is essential, and if you don’t have a degree already, then you need to get one. If you’re finally able to relax the wallet a little bit, then it’s time to invest in yourself. Multiple studies have proven that you can increase your income by having a college degree. If you already have one – great – how about your kids?
Finish Paying Off Your Mortgage
Typically, a mortgage is the largest debt that most people will have. If you’re sticking with the plan, then you have paid off all smaller debts and it’s time to start really pouring money into the principle balance on your home.
Increase Your Savings By A Lot
With your debt essentially gone, pump up your other investments, save money, and enjoy life without the needless stress of debt!