Worrying about debt is a national epidemic. If you owe money on student loans, car and mortgage payments, credit card bills, you are not alone. In fact, the Federal Reserve found that the national household debt is currently at $4 trillion dollars.
So it’s no surprise that for this year’s holiday season, more than half of U.S. adults say that getting rid of debt is the only gift they want. According to a poll from Country Financial of 1,000 adults, each consumer on average had to pay off nearly $58,673 dollars. Yikes!
Eliminating debt is no easy task, especially when you have a mountain of other bills to pay just to stay afloat. But take heart because with careful planning and some discipline, you too can stay out of debt for good.
Debt? What Debt?
If you owe anything to someone else or an organization, you have a debt. Yes it’s that simple. Types of debt include house mortgages, student loans, car loans, credit card payments, medical bills, and any personal loans. Amongst Millennials and Gen Z, the most common type is student loans. United States is currently suffering through a student-loan debt crisis. According to the U.S. Department of Education, adults ages 25 through 34 carried around $498 billion dollars in federal student loan debt as of 2019. The total came out to be $1.41 trillion dollars, which is a 33% increase from 2014. Nowadays, obtaining a four-year university degree will cost nearly three times more compared to the past three generations and the average student owes about $35,359 dollars upon graduation.
Having debt is extremely stressful and over time it can do a number of damage to your personal finances. So to help you get rid of debt faster, you may want to try out these few suggestions and methods below.
Organize Your Personal Finance
Duh.. It can’t be more simple than that. While this is pretty straightforward, it doesn’t mean it’s any less true. If you are overwhelmed by the stress of having debt, you need to make time to organize your personal finances. What this means is that you need to know where and how much you are spending each month and figure out what you need to keep and what you need to throw away. Perhaps you can do this on a spreadsheet or through an online service. But the general idea is to get an overview of your earnings, savings, and debt. On a side note, reading a book about personal finances can also be of huge help. A good one to start is Dave Ramsey’s The Total Money Makeover. Organizing your personal finances can definitely give you a better idea of the timeline in which you can pay your debt faster.
Spend. Less. Money.
FOMO is what drives our society to keep spending more money than we earn. After a hard day’s work, a promotion, a big project, each of us wants to to reward ourselves — because we feel that we deserve it. But the truth of the matter is, what we truly deserve is to be debt-free. We deserve to live with financial freedom so that our paycheck doesn’t automatically go towards paying off our loans. You need to know the reason why you want to be debt-free. Make this as clear as possible and work up the discipline to do whatever it takes to get that debt off your back. This means you will be making sacrifices along the way. You might need to cut your streaming services or stop buying afternoon coffee at your local Starbucks. But at the end of the day, all this will be worth it when you look at your assets and it’s no longer on the negative.
Pay More
Get into the habit of spending less and paying more than the minimum debt balance each month. If you continue to pay the usual 2% to 3% of the total amount, you’ll actually end up paying more interest and having less cash in your pocket. This also means you will take a longer time paying off your debt. Additionally, paying more than the minimum balance will help improve your credit score in the long run. Without a good credit score, you won’t be able to qualify for certain loans or prepare for mortgages.
The Debt Snowball Method
Dave Ramsey’s famous Snowball Method says:
- List your debts from smallest to largest, regardless of interest rate.
- Pay off the smallest debts first aggressively.
- While paying off smaller debts, making minimum payments on other debts.
- Repeat this method until your debt is paid in full.
The idea behind this method is that when you see your smaller debts finish, you’ll want to continue paying off your bigger debts with the same mentality. This is all about behavior modification rather than math. Once you see progress, you’ll be encouraged to continue forth. On the other hand, if you start with your biggest debt, you’ll drag on and won’t see real progress until years later. This will make you more discouraged and unmotivated to take care of your other smaller debts.
Paying off your debts will need to start with you. You need to make a conscious choice to do something radical about your debts. If you just put in the minimum effort and hope that all will go away later on, it won’t happen — at least not anytime soon. The earlier you pay off your debts, the more freedom you’ll have with your life. Your financial debts will no longer hold you down and you’ll be able to live life the way you’ve always dreamed of — taking projects you care about, traveling across the world, going after your dream job, etc. All this to say, a debt-free life can open many doors and the only way to start is with you.
