Step 1 – Change Your Habits
You can’t get out of debt if you continue to live the way that got you into debt. Your mindset needs to change.
Step 2 – Create a Zero-Based Budget
If you don’t have a budget, there is no way you can get out of debt. Period.
Doing a zero-based budget allows you to give every dollar a name. When you do that, you know exactly where your money is going.
There’s a good chance you’ll not only realize how much money you’re spending on unnecessary things, but also how much money you actually have.
Step 3 – Get Rid of Unnecessary Things
Sell things you don’t need. Have a TV sitting in the garage? Sell it. Have a boat you never use? Sell that, too.
On that same note, cut everything out of your budget that you don’t need.
You don’t need to do your nails ever 2 weeks. You don’t need to go out to eat at an expensive restaurant. Be realistic with your self and truly ask your self “do I need this thing to survive?”
Step 4 – Save For Your “Baby Emergency Fund”
We recommend putting 1 month of expenses into an interest savings account, like Ally bank. This is not an investment. It’s there for when an emergency comes up.
Learn more about emergency funds.
Step 5 – Pay Off Your Debts
We recommend listing your debts lowest to highest based on dollar amount and paying them off in that order. This is known as the “Debt Snowball” method. Most of the time you should ignore interest rates. Why? Because when you start to see progress, you’re more likely to keep going.
Now, there could be an exception to this. For example, if you have a loan with a 30% interest rate while the others are 6%, you’re hurting yourself more by not paying off that 30% interest rate first, and then work down your debt snowball. Same thing if you have a credit card with a “promotional rate” that is about to expire. You’ll want to get that paid off before all of the interest hits.
