“Almost there,” I thought, “just one more month.” For the last 20 months, I’d paid $1,000 every single month, and now I was down to my final debt — a student loan. It had been a long, hard slog because I wanted to use that money in so many other ways.
Paying down debt is never easy, nor is it fun. But here I was, 24, and I was about to be completely debt-free. I was only one month away from freedom. My entire monthly paycheck was about to be at my full discretion.
I eliminated $20,000 of debt in less than two years and remain debt free to this day. With determination and effort, I can promise that you can too. I want to give you tips and tools I learned along the way to help you succeed.
1. Find Your “Why” for Eliminating Debt
Paying down debt is more than crunching numbers and working spreadsheets. If you’re ever going to succeed, you need to have sufficient motivation to keep you going when you feel like quitting.
Simon Sinek in his book Start With Why urges readers to dig beyond their external motivations and look within to find inspiration to change behavior. Many assume that they need to focus on making more money, but neglect examining their habits. But most money problems are rooted in poor financial practices, rather than a lack of funds. Behavior modification is more critical than increasing your cash flow because a change in behavior is what leads to improved cash flow.
Do you know what your “why” is? It is imperative that you find the right motivation to knock this thing out, or you will be stuck in perpetual debt land for a long time.
2. List Your Debt
Open up your spreadsheet/website/yellow pad and jot down every single debt against you. List the full amount left to pay, the monthly interest, and minimum payment. Seeing all your debts in one place may be overwhelming, so take a quick break if you need to.
Listing your debts gives you an accurate picture of where you are. You’re forced to face reality. The sooner you do this, the quicker you will recognize the urgency of the problem. There’s psychological power in writing your debts down. It gives you the opportunity to look your debt square in the eye and begin planning your attack. You can’t create a plan until you know exactly what you’re dealing with.
3. Plan Your Attack
As the saying goes, “Fail to plan, plan to fail.” Don’t rush and start throwing money at your loans. Create a starter emergency fund to protect yourself against borrowing more money. Next, choose a debt pay off method. There are two popular methods: the snowball method and the avalanche method.
The snowball method says that you should start with the balance that is smallest instead of the highest interest rate, even though this doesn’t save the most in the long run. The theory is that the quicker you pay off a loan the more motivated you will become. Sometimes it’s worth it to pay a little extra in interest if paying off one debt motivates you. Hundreds of thousands of people have used this method to become debt free. It works.
The avalanche method says you should tackle the highest interest rate first and pay it down until it is gone while paying minimum payments on other debts. Once you’ve paid it off, move on to the next highest rate. Personally, the math motivated me, so I used the avalanche method. Choose whatever method is right for you.
The Sacrifices Paid Off
Getting rid of debt is never easy. There’s a reason it has the reputation of quicksand. Many cards, refinancing programs, and loan restructuring companies offer band-aid solutions, but nothing beats digging deep and eliminating debt. Even though it was hard, the sacrifices paid off and now I’m in a great position to build wealth so that I can provide for my family.
I was blessed to be debt free by 24, but no matter what your age, there is financial freedom to experience when debt is eliminated. Once a loan is paid off, I would recommend celebrating. No, this doesn’t mean a new car or TV, but a small celebration is warranted when you’ve accomplished something this life-changing. Treat yourself and then buckle down, recite your “why,” and eliminate the next debt. Eventually, destroying debt will become addictive.
Becoming debt free by 24 wouldn’t have happened without my personal “why” (my upcoming wedding). I would have thrown in the towel 100 times if I hadn’t spent time focusing on the goal. Forbes offers some helpful questions to ask yourself as you ponder what your “why” is and review your “why” regularly to increase your chance at success. Too often in finance, we think we can “set and forget.” There is too much proof that backsliding happens when we take our eyes off the prize.