I’ll never forget my financial breaking point when I was younger. I was 23 and had no way to pay for school. I really wanted to go to school because education is so important to me and I had no financial resources left for me to turn to. I had not only student loans, but medical debt as well that was terrifying me. I couldn’t ask family members or my boyfriend and all I had was myself to rely on so I took action. While I still have some debt, I am doing a lot better than I was and have paid off almost $11,000 worth of debt in three years, while working part-time making $11.00 an hour for the majority of that time. Getting out of debt and on your way to financial freedom is hard but not out of reach. If I can do it, so can you! Here's where to start.
Figure Out What You Owe and Where You Stand
This is probably the hardest part out of everything on your financial journey. It’s time to sit down and think of all the different debts that you owe, whether it be something overwhelming or something you hardly think about. For instance, I know some people are more worked up about credit card debt than student loans (mainly due to the interest rate) but debt is debt nonetheless.
Finding out where you stand might be difficult which is why I also suggest pulling a credit report if possible. There are free sites like annualcreditreport.com that can get you a copy from either Equifax, Experian or TransUnion. This might not be all of the debts you owe, but you can at least get a feeling for what exactly you may or may not owe. This is also a good time to check and see if there are any discrepancies on your current credit history.
Prioritize the Debt
Now that you see how much you owe and where you stand, (and probably after you had taken a minute to calm down, like I had to), start to prioritize your debt. List them in any order, from highest interest rate to highest owed, to get a gauge of where your current (if any) debt repayment goes. Decide what debt is most important to you and what debt you would like to see gone first.
Decide on a Debt Repayment Method
Personal finance is called personal finance for a reason. Everyone is different and what may work for someone else may not work for you. That’s why it’s important when coming up with a debt repayment strategy to find something that will interest you and work for you.
Some people like the debt repayment plan that Dave Ramsey praises, the “Snowball Method”. Others find it more gratifying to take care of the biggest debt first, since that is probably eating up most of your income dedicated to debt repayment anyways. Find what plan seems the most reasonable, because that is the plan that will work for you. I myself, found that reading personal finance blogs inspired me to figure out how to budget and allow myself to even have money for debt repayment, since I didn’t have a lot before.
Figure Out How Much You Can Afford
Since you may already be putting money towards debt repayment, find out if you can afford to put even more toward debt repayment so your balances will go down faster. Sometimes, when living paycheck to paycheck it seems hard to fathom putting even more towards debt repayment, but it can be possible.
Putting together a budget if you don’t already have one may come in handy at this time. A budget can help you see where your money is going and may allow you to put more money towards repaying what you owe if you’re not already doing so. It may be hard at first to part with even more money, but just remember that eventually, you will have all that extra money every month once your debt is gone, and then even more since you will be debt free!
Don’t Forget About a Savings Account
I advise, while you’re figuring out your debt repayment plan, to figure out a savings plan as well. Even if all you can save is $25 per month in an online savings bank, by the end of the year you will have $300 you didn’t have before. Sometimes debt is acquired by circumstance and not by shopping. A car breaks down, someone gets sick or something goes kaput in our home. It’s so easy to finance any of these things or just have them billed to you. Our society is built on convenience and helps you, the consumer, go more into debt. If you have savings put away, the situation could be avoided or at very least, lessened.
Put Your Plan Into Action...AND GO!
Everything is always paved with best intentions but unless you act on those intentions, you will stay where you are now. Now that you have a plan, follow it. Sometimes people advise creating a timeline for your goal, but sometimes things happen along the way. Don't become discouraged if that happens, as long as you’re chugging along and doing your best.
To help speed along the process, try to find new ways to through more money towards your debt, like selling excess things laying around the house. Have extra time? Try babysitting or picking up another side job. Try doing odd jobs for friends. The possibilities are endless when it comes to financial freedom. And don’t forget to reward yourself along the way. A small treat here and there might not seem like enough, but eventually they will be.
Debt freedom doesn’t have to be a myth. It can be a reality, and even more importantly, yours.