Debt Free Living Steps Anyone Can Follow
You can live debt-free. If you are currently drowning in debt, you might not be able to imagine that. You can though. You simply need to save, spend wisely and pay off debt effectively. Read on to learn how.
The whole process I am talking about in this article is to help you get your debt under control, but one of the awesome things that you are going to see happen is that you will build your self-esteem back up by taking control of the situation on your own.
You are a bad ass master or mistress of your own fate and you just do not know it yet.
Here is where you begin being the hero of your own life. You are going to turn around your financial situation by yourself.
If you think I am just all big talk, I am not.
I may be a 51 year old with a house now, but I was once a fresh college graduate with a ton of credit card debt and student loans. I was SO excited when I landed my first job out of school. I thought I would instantly be rich. I was so funny.
I realized pretty quickly that once I graduated, everything came due. Gasp. Huge payments. Gasp. Every penny out of my nifty paycheck sucked up. Gasp. Where is the fun of being a graduate?
I had opened about seven credit cards in undergrad. I had store cards, major credit cards, even a gas station card even though I did not own a car. I wanted to pay for gas on road trips when my friends drove.
You think that the money from your paycheck will go everywhere. You probably figured you would be living large. Not really. Not right away.
Debt Free Living: Take Stock of What You Have
You might not realize it, but until you know what you already have, you cannot plan for what you will do. This means you need to gather together your savings and checking balances, pay stubs, investment information, etc. You also need all of your monthly bills. That means rent, utilities, credit cards, insurance, etc.
Make two piles. You need to know what you have coming in and what you have going out, so you can make a budget.
No gasping. Budgeting is really not that bad. You can find out how to spend better and in the process you think about everything you do during a month, including every awesome trip to Starbucks or movie with friends. Okay. If you read this during COVID19, it probably includes your Zoom membership, so you can still talk to people one-on-one.
Before you write any budget item down, read every scrap of paper and tab on your browser of financial information first. Get a clear picture in your mind of what you have and what you spend. Reading over the information gives you a memory refresher of your month. You might otherwise not realize how all those delivered meals are adding or why it will not work to subscribe to every Internet television show.
All You Ever Wanted to Know about Debt Management.
Debt Free Living: Make a Budget
Write it all down. The best way to pay off debt is to reduce spending and use the money to pay off your credit cards. Write down or enter in a spreadsheet all the money you have coming in and all the bills going out.
Some people suggest you make columns or list categories, but I am going to tell you now that to find where it is that you are overspending, you need to first see what happens in order. That means, enter each item like you would in a bank register. If you use zero-based budgeting, you start with a zero, then enter each item incoming and outgoing to see when and what you have going and going. This lets you see if you have bills due before your first monthly paycheck. If you are paying things late and incurring late fees, you need to list the fee separately. That lets you see where you incurred extra charges and why.
You date each entry so you can see your cash flow. People in business are accustomed to that term. It just means how money comes into your accounts and goes out of them. You probably have a few accounts that you hold money in such as a checking, savings, PayPal, Payoneer, and maybe a Stash or Acorns account. Doing this lets you see where and when you have money and expenses.
Take a deep breath.
You probably have a pretty scary looking spreadsheet or list in front of you. It will not be like that for long. That is because you are about to take charge of your own financial life and find the item or items that has sucked your money away.
Once you find the problem, you are going to kick its ass.
Make up a color code. You might make your favorite thing you do most often your favorite color. That way, you have something happy to look at in the midst of yuck.
Make the fees red. Any fee, highlight it in red.
You might make rent and utilities blue, going out to eat purple, credit card and loan payments green, etc. You just need to be able to highlight the categories of expenses in color code. Money coming in should remain black.
Now, you have a rainbow in front of you and it might be pretty. You should see the color black frequently. If you do not, you have found one problem.
What category do you see most often? Is you spreadsheet rife with credit card payments or loan payments? Is it nearly all purple from UberEats deliveries?
Uh oh.
You found your problem.
It is a huge problem.
Worry not. You can solve it.
Debt Free Living: Problem Solving
Now that you can see the problem clearly, you can solve it. Since we are talking about getting debt free, let’s use the example credit card bills. If you put everything on a credit card, you are spending more money than you see reflected on the spreadsheet. You incur interest payments every time you make a charge, but do not pay the full balance.
That results in you paying up to 25 percent extra. You might purchase something for $100, but when you put it on your credit card, you pay 20 percent interest on it, so it actually cost you $120. You might have caught something on sale and thought you saved $10 buying it. Nope. You paid an extra $10 for it.
The first thing you have to do is stop spending on credit cards. If you do not have money in the bank for it, you just do not buy it. This might sound harsh, but it solves the whole problem.
Now, you probably think, “Woah, Carlie. I put a lot of expenses on credit. How will I pay for everything?”
Well, I will tell you straight that for a few months at least, you will not get to buy everything you usually do. You need to cut back so that you can pay for everything out of your incoming monthly money. Debt free living starts with paying for what you need only until you pay off the debts.
Debt Free Living: Make the New Budget
Make a list of all the things you genuinely have to pay in one month. Rent. Utilities. Gas for your car or motorcycle. Credit card and loan payments. Groceries. Telephone.
That is what you spend your money on for a few months.
You suck it up and stop spending.
You can still drink Starbucks, but you purchase their ground coffee or K-cups at the store and brew it at home or your office.
You have friends over via Zoom or in-person. Make it a potluck. Everybody cooks a dish and brings it. You get to socialize, but it saves you money.
You need to budget these changes, too. Determine how much you can spend on groceries. Stick to that.
Debt Free Living: Pay Off The Credit Cards
While it is typically the most important thing to save money and build wealth, you are not doing that when you charge expenses. You need to use your savings to pay off the credit cards. Whatever you have saved, you need to pay off the first and highest interest rate first.
Pay it all off at one time if possible.
You may need to liquefy something to do this. Maybe your grandma gave you some stock that you have not thought of for years. It might have seemed an odd gift when you were a kid, but as a grown up, go find the certificate and liquidate the stock. Use all the funds you obtain to pay the credit cards off.
Always target the most expensive cards first. You need to reduce the amount of debt and the amount of interest incurred quickly and efficiently.
You can do a few other things to quickly and legally get funds for payments. Pawn expensive items you own. Sell somethings on eBay or on PoshMark. You need items that sell immediately, so think in terms of 24 to 48 hour sales.
Tap any funds you have in a money market account and cash in a certificate of deposit if you have one.
The quicker you pay off all of the credit cards, the quicker you get to go back to a more normal life for yourself that includes the Starbucks drive thru.
This is your short-term way to quickly access money to pay the debt down fast.
Last Resort - Family Help
The last option is asking family for a no interest or low interest loan. It might kind of suck to ask your mom or dad for help, but show them all the budgeting work you put into this and the thought and care you are contributing to making things better for yourself.
Only do this if there is just no other way. This is not just because they will roll their eyes that you got so far into debt. This is because doing so will hurt your own self-esteem and you probably already feel bad about the situation. You probably feel embarrassed just looking at your spreadsheet and frustrated with yourself.
The first thing I did and you should probably do if credit cards is the problem is consolidate the credit bills. Use a non-profit that provides credit counseling. These folks contact each creditor for you and negotiate a lowered total bill for you. You turn over all your accounts to them and the first thing they do is cancel all your cards.
Contact a non-profit for credit counseling
You could call each card company and try to negotiate this yourself, but the reason they give up to a 40 percent reduction on your total bill is that the non-profit can show them the contract you signed and that all of your cards will cancel as soon as payment is made.
You will not be able to add new charges. You will pay the non-profit each month a lump sum which it distributes to each creditor for you.
This may seem tough, but this option save you so much money! The non-profit even negotiates a lower interest rate for you. When you make this your first step and you liquefy some savings or sell stock, you make a balloon payment to the non-profit and suddenly find yourself nearly or totally debt free.
Imagine paying off or having 40 percent of what you currently owe cancelled in one day. It is that awesome.
Okay. Now that you got off the phone with the non-profit folks and you now instantly owe only 60 percent of what you did two hours before you feel pretty damned in control, don't you? How bad ass are you?
The non-profit can include any type of debt except student loans. You have medical bills? They can help. You have personal loans? They can help.
So, now instead of $10,000, you owe $6,000. You also make one smaller payment each month that lets you have some money for groceries. Spend the freed up money paying off the student loans.
You can get a deferment from Sallie Mae. This temporarily absolves you from making the payments. You get one year.
Instead of not making the payments, take advantage of the deferment to allow you to make payments each month that you get to time to when you have the most money.
When the year is up, you still made payments. They were just really dang convenient payments.
Call Sallie Mae a few weeks before the deferment ends. Tell them your salary and ask about reduced payments while your income remains low. Rather than a $500 payment per month, you get a $98 one.
You can totally make that payment because you are now one year into your job. You probably got at least an inflation raise of about five to seven percent. You also have a small credit card payment each month that goes to the non-profit. As quickly as the non-profit payments work, you probably already paid off at least two store credit cards and that reduced what you owe since you now saved all that interest, too.
Aw, look at you.
Just one year out of college or in your new job and you, you butt kicking bad ass have paid off half of the credit cards you owed. You reduced your card debt by 50 percent in one year. Damn, you are good.
You pay extra to Sallie Mae when you can. If you need to, you can take a second deferment.
Get a Second Job
I know. You wanted to chill. You can slay your debt much faster though if you take a second job. It can be just one day a week. You just need an extra payment. When I did this, I started blogging for other companies. You could drive Uber or Lyft. Bag groceries. Answer phones remotely. Take orders over the phone for a business or set appointments. You do the work from home. You just need a second income. That is all.
You really do not need to feel bad. Everybody has a month their checking account does not balance out or a time when they take out too many credit cards. Every person has had a time when money was tough.
You just have to take the bull by the horns and take control. You can turn things around. If I could, you can.
Look at that second job you take as an opportunity. When I earned my BAs in Journalism and Film, I thought I would work as a journalist at a newspaper, probably as a film critic. I did not imagine that when I wrote my first blogs for friends' businesses and a handful of folks on Constant Content that I would end up being part of a new wave of content. Those blogs turned into a public relations firm specializing in creative content and eventually landed me a book deal. Instead of writing film reviews, I author an edutainment book series on Hip Hop for a major scholastic publisher.
In Conclusion
You just never know where your situation will lead you, but this article, that deep breath and the belief that your inner badass exists can help you turn everything around. You might find yourself writing this type of advice for future yous 30 years from the day you read this. Remember to tell them: It is all going to be fine. You are a bad ass. You can handle this.