Debt can hold us back from building our long term wealth for way too long if we let it. I’m giving you my step by step debt payoff strategy, so you can move to more exciting financial goals. This strategy will help you know exactly when you’ll be debt-free, how much you’ll spend on interest, […]
Debt can hold us back from building our long term wealth for way too long if we let it. I’m giving you my step by step debt payoff strategy, so you can move to more exciting financial goals.
This strategy will help you know exactly when you’ll be debt-free, how much you’ll spend on interest, as well as how much interest you’ll save by knocking your debt down sooner. We’ll go over how credit card minimum payments are designed to keep you in debt for what feels like forever, but how you can break the cycle and start using your money to invest in yourself vs make large profits for credit card companies.
Going through these steps can save you thousands of dollars, so let’s get into it.
The first thing you’ll do is write out all of your debts and the interest rate next to each. A lot of people have a difficult time with this because lenders are great at hiding their interest rates, so if you can’t find it on your statement, then call the 800 number and ask for help.
Now take that list and enter it into this calculator.
This calculation shows you what it looks like if you keep going on your current debt repayment plan.
Next, write out all of your bills and expenses. Try and get as close as you can to what you actually spend and take a look at this video if you need help with that.
What we’re trying to do with this step is to figure out how much money you have to work with after all of your expenses are paid. The extra you have can go towards your debt after you have your first $500 to $1k saved up.
Then, take a look at what that extra looks like in the calculator
If you have nothing left over then you either have to accept how long you’ll be paying off your debt or get creative! Look at your expenses and see where you can make some cuts. For this, you’re really going to have to tap into why you want your debt paid off so you don’t feel deprived when making financial sacrifices and instead feel empowered and strong every step of the way.
You may have to get a second job, a roommate, sell your car, or many other things, but remember it’s temporary!
With the extra money you commit to paying down debt, I encourage you to do that immediately when you get paid, so you’re not tempted to spend it on something else.
Next I want you to check your credit. If your score is over 700 you can probably qualify for some decent interest rates, so look into refinancing what you can or even doing a balance transfer. Be careful with those though because the rate will spike at the end of the term, so make sure you can pay your balance off before then.
Now I do I want you to take a min and ask yourself if you are someone that really wants to be completely debt-free or do you just want to have that high-interest debt paid off?
I read a book called the value of debt and it taught me an interesting perspective of how CFOs of companies manage debt and use it to their advantage and how we can do the same thing as individuals.
So for myself, I got all of my rates as low as I could through refinancing and then I decided to pay off all debt over 4%, and then start aggressively investing in the stock market. If you want to see my calculations for deciding to invest over paying off my student loan after I refinanced it take a look at this video.
Rates are even lower now, so last I checked my rate was at 2.8%.
I don’t think there is a one size fits all way of doing things, but if you take a minute to decide how you feel, then you can make the decision that’s right for you. If debt really weighs on you then pay it all off, if you like the idea of having some flexibility with cash and other investments, then pay off the really high stuff and invest the rest while you stick to a payment schedule for what’s left.
One thing for sure you don’t want to do is ignore your debt or just pay the minimums if your rates are high because it can drastically decrease your long-term net worth.