Debt is a four letter word: Debt Payoff Plan

Hand holding credit cards
Debt is a four letter word: Debt payoff plan in 10 steps

Let’s talk about that four letter word that can get us into a pile of &^%# with no good plan to get out of it. Until now. I have a 10 step debt payoff plan to help you get rid of your &^%$#@! debt.

All of the debt.

I remember my first credit card, do you remember yours?  It was a Bank of America student card; sign ups were right on campus my freshman year of college.  Felt like a great way to ‘establish my credit’ and….do a little shopping!  Thankfully, I only got the one – at that time.  And, luckily it only had a $500 balance which I perpetually maxed out each month.  I’d pay the $25 minimum, and then go spend that $25.  I was b-r-o-k-e in college.

As I traveled through my twenties I had a few more credit cards; everything from store cards, to gas cards, traditional bank cards and other lines of credit for a computer or a short lived Bowflex.  This was all very normal, and I imagine that you can share some of this same story with your our credit card history, right?

In addition to credit card debt I got my first car loan with my Dad as my co-signor my sophomore year of college; I added auto loan debt to my list.  Of course I had student loans lurking in deferment too. In my mid-twenties with a stable job and another co-signor I took on my first mortgage.

Still, quite normal – right? Debt does not have to be your normal.

It wasn’t until I was in my thirties with a handful of cards, a handful of mortgages and still paying on student loans that I realized I didn’t want to be normal anymore.  I was tired of turning around and using our hard earned incomes to pay back items from our past instead of saving for our future.

Stop using your hard earned income to payback your past instead of saving for your future.

Sarah VanHoose, Journey to Influence

This is when Dave Ramsey’s money management philosophy entered our world, and we were intentional on becoming debt free.  We remain debt free (except for our mortgage) now and plan to tackle that with gusto just as soon as we get that tiny house in place, and return back from that hiatus to Mexico for a year – if I can convince the hubby. 😉

Do you feel similar?  Ready to ditch the debt to start seeing your future clearly?  Tackle bigger goals instead of having your old  ‘gotta have its’ still playing catch up?

10 Steps to Payoff Debt

  1. Go all in.  Decide that you’re going to do it. This is the time. 
  2. Make a budget – you need to know where all of your money is going so that you have a plan for the extra to tackle your debt.
  3. Get support if you need help getting started.  There is no shame!  We can work together to get you pointed in the right direction and then you can go after it, or you can DIY with the video budget training series, or I can come beside you and coach you through it all.
  4. Tell yourself again that you’re going to do it.  Because it’s a big step, and it’s going to be hard.  But you CAN do it.
  5. Make sure that your emergency fund is in place – that’s $1,000 in a separate savings account.
  6. Get rid of your credit cards.  I want you to cut them up and throw them away, but if you’re not ready for that – lock them in a Ziplock in the freezer. You don’t need them.   You are going to cover your own emergencies from now on.
  7. Write down your debt in order of smallest balance to largest balance.  Ignore the interest rates for now – we’re just talking about balances right now.  All of your debt except for the house.  Student loans are debts.  Cars, boats, home equity line of credit, etc.  All of it.
  8. Pay your minimum balances on everything except for that smallest balance debt. Put EVERYTHING extra that you have each month toward that smallest balance debt.  Go big!  Get aggressive!
  9. Trim up your monthly budget to put as much extra that you can towards your debts.  What can you temporarily pause for now? How can you wipe out this debt as soon as possible?
  10. Get that first debt paid off and do a happy dance, now take everything you were putting on that debt, and roll it over to the next one. 

That’s the simple formula, the easy steps to get ride of your debt.  Sometimes it makes sense to sell something (maybe that spendy car, or that old boat) in order to get out of debt faster.  Sometimes it may mean pausing vacay for a year to get free and clear of debt. 

Sample Debt Payoff Plan

This first table show how folks traditionally tackle debt. They want to tackle high balance accounts first; I get that – it’s costing you the most money.  But let’s be honest, they’re all costing you money – I want you to get rid of ALL of them quickly.

DEBTMIN PAYMENTTOTAL BALANCEINTEREST RATE
Credit Card 2$40$1,00024%
Credit Card 1$25$50017%
Student Loan 2$150$15,0004%
Student Loan 1$100$5,0003%
Car 1$300$7,0005%
Car 2$500$27,0003%
Home Equity Loan$400$20,0004%
Avalanche Method of Debt Payoff – Highest Interest Rate First….but not the one with the most momentum.

This is how I would coach my clients to tackle debt payoff in this situation.  This debt payoff plan works with the smallest balance first, often referred to as the snowball method.  Gain momentum.  Knock out the first one, roll into the second one – keep piling up the amount you’re putting towards that debt and before you know it you’ve moved on down the line.  You can’t put a price on momentum!

DEBTMIN PAYMENTTOTAL BALANCEINTEREST RATE
Credit Card 1$25$50017%
Credit Card 2$40$1,00024%
Student Loan 1$100$5,0003%
Car 1$300$7,0005%
Student Loan 2$150$15,0003%
Home Equity Loan$400$20,0004%
Car 2$500$27,0003%
Snowball Method – the momentum is contagious here and you get to celebrate small wins along the way!

Now go out there and tackle your debt!  Free up your income for fun, and your future.

Thank you for joining me on my my journey to influence.

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