Lowering your debt is like losing weight. It takes time and dedication. But the good news is–it can be done. Here are the steps to make debt dieting work for you.
- CALCULATE TOTAL DEBT. Get out all your bills and write down amount you owe, payment and interest rate.
- WRITE DOWN EVERYTHING YOU SPEND. Carry a pad (or get a good mobile app) and record every penny. Often the small amounts spent on coffee, eating out, or impulse purchases add up to sizable monthly chunks.
- MAKE A BUDGET. After you’ve tracked your spending for awhile, decide how much you can spend in each category every month. Determine how much you can apply to debt.
- PICK YOUR DEBT. Some advisers recommend paying off debts with the highest interest rates first and mathematically that makes the most sense. But if you’re encouraged by seeing progress, you may prefer to start with your smallest debt and work your way up.
- START AN EMERGENCY FUND. You should also put 10% of your monthly take-home pay into an interest-bearing savings account or money market account. It’s a good discipline. You never know what’s around the corner.
- APPRECIATE AND PRACTICE THRIFT. Ben Franklin had it right –a penny saved is a penny earned. Congratulate yourself every time you clip a coupon, make your own coffee or pack a lunch. Making thrift a habit is the best way to keep from gaining your debt back.
We wish you a big loss. Let us know what works for you and we’ll share it on this blog so others can also benefit.