One of the best side-benefits of writing about our debt-reduction is that it has opened doors to face-to-face conversations about debt. Most people carry their debt-stress in secret. Reading about debt-reduction online is safe, but IRL discussions require a new level of openness and trust. Recently, I was so happy to be approached by someone who was looking for advice. This 30-something, married mother of one was feeling overwhelmed by debts, finances, and all of the different points of view out there. She was looking for clarity. “Could you summarize all of the advice you have about debt-reduction and put it into 10 points?” she asked. I was, of course, more than happy to do just that. Only I couldn’t stick to 10 – so it’s 12 – plus one more if you count the bit at the end. Here it is:
My advice about paying off debt (to someone who actually asked for it)
#1 – Get uncomfortable with your debts and gain a strong desire and vision for debt-freedom.
Take a good look at what your debts mean in terms of limiting your freedom. Imagine the freedom of choice that you would have if you had no debt. Recognize that it’s possible to get there.
#2 – Get buy-in from your spouse.
You can’t impact your household finances much on your own. Your spouse has to buy into the idea of financial health and debt reduction along with you.
#3 – Know your numbers. If your head is in the sand when it comes to your finances, yank it out.
How much take home income do you earn each month? Exactly how much mortgage, line of credit debt, credit card debt, and all other types of debt are you carrying? What are your monthly payments? How much are you paying in interest?
#4 – Don’t use debt to pay for the unexpected. Save a mini-emergency fund.
Unexpected expenses are going to happen, and unless you’re ready for them, they can be very discouraging. Save $1,000 – $2,000 and keep it on standby. Only withdraw for emergencies – like an unexpected car repair or appliance malfunction. Replenish your emergency fund after you use it.
#5 – Track all of your expenditures
That’s EVERY DOLLAR that you and your spouse spend. Find the tracking system that works for you, whether it’s pen and paper, a spreadsheet, a tracking app … It doesn’t matter what method you use; the important thing is to follow through. Once you have tracked for at least a month, you’re ready for the next step.
#6 – Create a budget.
Tell your money where it’s going to go each month instead of being surprised by or unaware of where it went. Include discretionary spending in your budget – perhaps as an “allowance” for each of you. Don’t worry if you find you can’t follow your budget perfectly. You’ll get more exact with practice. Expect imperfection, and be confident that progress will happen in spite of it.
#7 – Don’t use debt for any planned purchase. Save up.
Scale back on your debt-reduction in order to save more quickly if you need to. Don’t ever rely on a credit card or an extension of your line of credit to buy what you want/need.
#8 – Have a weekly meeting with your spouse to discuss your finances.
Not exactly romantic, but it might just be the best thing you could possibly do for your relationship. (Most divorces are caused by financial conflict and stress.) Meet each week to check in and see how closely you’re sticking to the budget and whether or not any unexpected expenses are happening.
If When conflicts arise, work through them.
#9 – Consider paying your mortgage every two weeks.
You’ll end up paying off more each year. It’s a simple way to make progress on your biggest debt as you fist focus upon your smaller ones.
#10 – Focus on your smallest debt first.
Continue to make steady, regular payments on your larger debts (like the mortgage), but put all extra payments you can manage against your smallest debt. Once it’s gone, focus on the next smallest debt.
#11 – Make a goal for each debt as you focus upon it.
Eg. “We will pay off the $25,000 line of credit in 18 months.” Track your progress in an in-your-face way. Put up a graph on the fridge or on your bedroom mirror. Recognize your milestone moments along the way – “We’ve paid off another $5,000!” – and celebrate them.
#12 – Read personal finance books and blogs.
Keep yourself informed and encouraged through your long-term effort to pay off debt. You are subjected to thousands of ads per day – all urging you to “Buy Now!” because “You Deserve It!” You are also surrounded by people who are caught up in our consumer culture. Be intentional about putting yourself in the way of the opposite message on a regular basis. Find the voices that speak to you.
Be prepared to come face-to-face with your own character flaws as you try to lower your debts. Be prepared to have conflict with your spouse as you tackle your debts together. These are good things! The dirt is already there. Best to bring it to the surface so that you can clean it.
Would you add any other piece of advice to this list? Which point do you think is the most important? Your comments are welcome.
Image courtesy of Pixabay.