You don’t know how it happened –
or maybe you do – but suddenly it feels like you’re drowning in debts. But no fear. I’m here to help you.
First of all, don’t get discouraged and hide your head under the ground. We can fix this, it’s not a hopeless affair. But you need to listen carefully and follow a few basic steps. Ready?
Take a deep breath and let’s start!
1. KNOW EXACTLY “HOW MUCH”
Note I said exactly, I even underlined it. So keep it in mind. You don’t want to know approximately how much you need to pay off in debts, you must know the exact amount. To the cents? Yes, to the cents.
Why? Because you need to keep that number in your mind, every day. So that you don’t forget it, so that you don’t underestimate it, so that you constantly keep your focus on it. This is though, but it will ensure you stay motivated and focused all the time.
Yes, sometimes it will need to become an obsession. This is crucial: the first advantage you need to take over your debts is time because – as you probably know by now – they grow in time. There’s this thing called interest, blah, blah, blah and that’s how it works: it grows with time.
So, again, know the exact amount. And you can do this by calling your bank, sorting through mail slips, going online, and parsing through the numbers. Once you know the damage, you’re ready for the next step.
2. SET A GOAL
Now you’re ready to set a goal of action. As my English teacher in high school used to say –
“If you have a plan, you can’t fail”
And this is something that really resonated with me over time – and it should with you, too.
Whenever I’m feeling overwhelmed, I write the problem down, I stare at it, and that I create a plan of action. And that’s what I’m suggesting you right now. Sometimes problems appear in our minds bigger than they really are. But if you create a plan that is as detailed as possible, it will feel easier.
For me, it works every time guaranteed.
So now take that number, write it down on a piece of paper, and think of the exact steps you can make to get rid of your debts. They don’t have to be in a specific order at first. Actually, it’s better if you clean your head and your plan one step at the time – this will give your mind more time to think of better actions to take.
And another tip would be to write it down and put it in a place you’re forced to go every day – it might be your bathroom for example.
However, if you really have no idea of where you can start, here are some:
- Pay off loans and credit cards with the highest interest rates – as we said, your debts grow with time, so don’t let them snowball.
- Pay off your debts in ascending order (i.e. the smallest ones first) – the positive momentum of accomplishment will propel you toward paying off larger, more intimidating bills.
SOME MORE HACKS ON SETTING A GOAL
What I’m about to say can be applied not only in setting this specific goal and stick to it, but it more generally applies to every habit you try to develop in your life.
- BREAK UP YOUR GOAL
In order to develop a habit – like paying off your debts – you need the magic combination of breaking up your goal into chunks + a reward to really stick to it long enough to make it into your routine.
If you’re looking at a larger goal, like paying off a hefty mortgage I strongly suggest you break up your goal into manageable chunks over a period of time. Why would you do that?
Because breaking that large goal into smaller chunks helps you get into action! And – especially at the beginning – this is the thing you need the most: starting. Think of it. Think of how many times you procrastinated on something because you thought
Oh, ok, this is huge. I can’t make it right now! I’m gonna do it later when I have more time.
And maybe you ended up not doing it at all. When you set a too big goal your mind starts going crazy, and start listing you all the reasons why you’d better not do this.
But if you start with something very little, your brain won’t have excuses, cause it’s something you’re confident with. And that little step will create a snowball effect, allowing you to do more and more as you go on.
- GIVE YOURSELF A REWARD WHEN YOU ACCOMPLISH A GOAL
Consider these little rewards to be like stopping for a drink of water or some nutrition for your soul during your marathon.
Your reward could be a meal with your partner, a trip to the movies, a pizza night or maybe even a toy for your child – literally anything that brings you some happiness.
It’s your reward, you decide what it is, but don’t choose something that it’s only setting you back – like a blow out shopping trip.
Learn from my mistakes!
You want a small sensible reward that makes you feel good but for as little cost as you can. Always remember that you must keep your focus on the end game.
3. CREATE A ZERO BASED BUDGET
A zero-based budget is where you allocate every single dollar from your income until there is a zero balance. It helps you plan where your income will be spent for the month on paper before spending it in real life.
Here is how I budget myself – in case you need an idea of what you will be doing. The percentages refer to the total monthly income.
40% – Costs. Everything from bills, groceries, and various subscriptions.
25% – Investing. I don’t recommend you invest before you’re debt free. Instead, adding this amount to the savings it’s a better idea.
20% – This is what I call The Las Vegas. It’s everything I can spend guilty – free, let’s say it’s my monthly reward.
10% – Knowledge. This is what I invest in my knowledge. It includes books, audiobooks, online courses, seminars and so on.
5% – Emergency fund. This is what I save monthly in case of emergencies. It’s crazy what you can save, only using the 5% of your monthly income!
Whenever you go to spend money, refer to your budget and if it isn’t planned – don’t spend it!
Even if you created the perfect budget and you keep sticking to it, you should always willing to spend less. It’s millionaires first rule!
Here are some ideas:
Cut out any unnecessary spending like subscriptions – do you really need cable TV or a Birchbox subscription? Cut out any expense that is not essential. I personally canceled my cable TV and stopped magazine subscriptions, because I wasn’t using them so much anymore. Also, you can evaluate every utility bill and see if you can get a better plan with a different supplier.
Going Zero Waste: going zero waste is definitely one of the things that changed my life – and my pocket! You really have no idea of how much you spend on plastic until you stop using it, and you start noticing how much of an impact you alone have on the planet. I don’t consider myself completely zero waste, but it’s a journey and I’m trying my best every day. In case you’re curious about this topic and want to know more, here are 10 basic and easy ways to start going waste-free right now.
Ditch Cable: According to some researchers, 82% of households were subscribed to a pay-TV service in 2016, with the average monthly plan costing approximately $104. How much television would you have to watch per day to justify that cost? You can cut your cable costs by subscribing to Netflix, Hulu, or Amazon Prime Video. Or give up television altogether – at least for a while.
These things will improve your finances, and they just may improve your life as well.
I like eating organic, but my grocery expenses are less than many people I know who don’t eat organic. Why? I shop online! Vitacost and Tropical Traditions are my go-to websites for finding great deals on groceries and all other things health and wellness.
Another idea is using Ibotta, which gives you cash back on many of the things you already purchase, like groceries and other household products. All you do is save your grocery receipts, submit them through the app, and voilà! Cash saved.
Make Dining Out a Special Occasion: Another great option that I recently implemented into my money-saving regimen is $5 Meal Plan. They surveyed 2,134 families and found that, on average, families were spending 2 hours a week planning meals. Their solution? Deliver awesome, cost-effective meal plans for only $5 per month. Since their average meal costs about $2 per person, you’re saving time and money.
5. INCREASE YOUR INCOME
I know what you’re thinking. Probably you already have a job, and probably it sucks away most of your time, but I’m gonna tell you anyway: increase your income. And I’m telling you this because there are actually passive ways of making money, even if you don’t have much time.
There are tons of ways to make money passively to pay off your debts, and I can’t list them all here or this would end up being a passive income post, but I can give you some ideas to start with. Here they are:
Freelancing is paying my bills most of the time. Right now, I make several hundred dollars a month writing articles, editing websites and offering SEO consulting. There are tons of websites that allow you to do it – maybe the most famous one is Fiverr. No matter what your skill set is, there’s likely someone willing to pay for whatever it is you’re offering.
- TEACH ENGLISH ONLINE
I didn’t try this personally, but many of my friends do or have done this before and they said nothing but good words about it.
VIPKID – it’s a community for teaching English to Chinese kids. You can do it both part time or full time and – especially if you love working with kids – it can be a fulfilling experience.
- SELL, SELL, SELL!
Look around your home. Are there any items that you no longer use or that have become an eyesore? What about that outdated laptop? Do you have two cars but really only need one? Can you use public transport instead?
Only keep items in your home that make you happy. Not only will you spend less time looking after all these things, you will also create more time to do more of what you love in your life.
6. PAY MORE THAN THE MINIMUM
Paying only the minimum required each month will not help you pay off debts in a timely fashion – and, of course, it also plays into the hands of banks’ interests.
As we already said, letting time go by is the worst way to manage debts, because time will make interests grow, and will create a negative debts snowball. Pay as much as you can possibly manage each and every month, and double your minimum payment whenever possible.
7. AUTOMATE PAYMENTS
Try – whenever possible – to automate payments. Almost all banks offer this service.
This will ensure you never forget to pay, and also make saying goodbye to your cash a little easier!
8. SAVE FOR AN EMERGENCY FUND
For how long could you live a decent life if you lost your job, right now?
I know it sounds catastrophic, but it happens. And more often than you might wish or think. And this is just one of the many things that could happen without notice – like the car breaking down, or the toilet breaking and flooding your entire apartment.
That’s why you need to be prepared. Save $1k as soon as you can and only use it for emergencies.
Being stressed out about having no money is horrible – you are forced to make decisions based on your next paycheck and you never know what could possibly happen. And when you least expect it, the worst happens.
By having an emergency fund, you are always covered for any emergencies that arise. Save $1k as soon as you can and you will sleep better! Guaranteed!
9. GO CASH ONLY
Old school, yeah, I know, but going cash-only is the most dependable, concrete way to track your spending. There is something dangerously effortless — and abstract —about paying for things with a credit card, and it often leads to spending even when we shouldn’t be. Some tips to go cash only include leaving your credit cards out of your wallet and deleting any stored credit card information from websites you frequent –
damn you, Zara!
TWO LAST TIPS
10. NEVER STOP SEARCHING
Never stop searching for new ideas and ways to get rid of your debts. Keep working hard, and constantly look out for some inspiration to keep you motivated along the way.
You could make searches about other sources of passive income if you think the ideas in this article weren’t enough – then try, try, try until you find something the fits your routine and your everyday life. After all, this is Internet’s good side.
11. REMEMBER IT’S TEMPORARY
Paying off debts isn’t an easy feat. It takes time, patience, and a lot of hard work, but it can definitely be done.
Keep your focus on the positive thing: it won’t last forever. Believe it or not, it will end someway – if you work hard – and you’ll be finally free to do whatever you want with your money.
One last tip that works hard for me every time I’m trying to do something challenging – like paying off debts – is visualizing myself actually doing what I find difficult. I can guarantee you that it works because this will keep you focused and motivated on your goal.
So do this last exercise: every day, for 5 minutes or less, visualize yourself paying off those debts and being debt – free. You’ll see that after a while your mind will feel confident with that reality, and you’ll finally stop procrastinating! Day after day, it will stop looking like such a distant – and impossible – reality.
This was a really looong article and if you’re still here, my congratulations! I’m sorry, but I wanted to make sure it was as complete and useful as possible. Good luck with paying off your debts!
What steps have you taken to pay down your debt?
What are your favorite money-saving/money-making tools?