Posted by admin on January 1, 2013
There are no magic bullets for getting out of debt, and in most cases the process requires discipline, planning, and time. Having gone through this process myself I’m happy to share my must-win steps on how to get out of debt faster than you ever thought possible.
Step 1 – Decision Time
The word decision comes from the Latin, decidere, which literally means ‘to cut off’. This idea really helped me when I started my debt-free plan. Making a decision to get out of debt means to literally cut off the possibility in your mind that you can stay in debt. There are many gray areas when dealing with money, but DECIDING with 100% certainty that you will get out of debt is an immensely powerful action.
Step 2 – No More Borrowing
It’s a bit clichéd, but you can’t get out of a whole by digging. Continuing to borrow money while you’re trying to get out of debt will crush your motivation and slow down your progress. So you have to set yourself up so that borrowing is no longer necessary. This might take a bit of time, but it’s essential.
Step 3 – An Emergency Fund Is Your Friend
You’ve probably heard this advice a million times, and for most people the idea of having some money ‘just in case’ is almost laughably unrealistic. Here’s what I’ve found. Even a small emergency fund reduces headaches and stressful events. Just knowing that it’s there can be a huge relief, and when something DOES happen, you know you have the money to fix/replace it.
Start small – even $500 or $1,000 is enough to cover many emergencies. Do this before diving into your debt repayment and you won’t have to go further in debt when something happens.
Step 4 – Add It All Up
You have a goal, now you need a plan. To make a plan you have to really understand your situation, so get to work adding up all your debts. You’ll need to know:
- How much you owe
- Who you owe it to
- How much you’re paying in interest
Step 5 – Highest Interest Or Debt Snowball?
There are two schools of thought for debt repayment. Mathematically, paying off your highest interest loans first will save you money. Others argue that behavior is more important, so start with your smallest loan amount and pay it off first, then move to the next (like a snowball). I used this method and found it extremely effective.
Step 6 – Look Ahead
Sites like www.debt.ca/ have a ton of tools and calculators which can help you map out your debt repayment timeline. These tools are also great for understanding how lump-sum payments and small increases in monthly amounts will make huge dents in your debt.
Step 7 – Get Excited
This is a game, and you’ll do better if you’re having fun. Every sacrifice you make now is a victory in the long-run, and enjoying those as much as possible will help during this challenge you’re facing.
Helpful article: http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca00038.html