The Best Way to Pay off Debt
Paying off debt is a slog but it is so important and often the first step in our financial journeys. Over the last year, I have made a huge dent in paying off my debt. I still have a little way to go but I intend on continuing the flow I have started and want to share with you how I have been getting this down.
First of all, I had to understand that it was going to take a while. It can get frustrating because we can never pay off as much as we would love to in one go. As long as we stay with a positive mindset and have our goals in sight we can keep doing the best we can.
What Is Costing You The Most?
So, first thing's first, figure out which debt is costing you more. Normally this would mean the account with the highest interest rate. However, if you have a much higher debt with a slightly lower interest rate, you could still be paying more. So whichever one is costing the most, start paying that one back first. You may need to reassess this in the future as interest rates can change or you can get your biggest debt down to second place etc.
Now obviously if you have more than one source of debt you will need to keep paying the minimum payments each month on all accounts however on your biggest or "most expensive" debt the worst thing you can do is pay the minimum. If you keep doing this it will cost you more in the long run and it will take such a long time to pay off. So make sure you are putting in more than the minimum each month. You need to know though how much money you have available to go towards this debt.
Create a Budget
First of all, you need to start a budget. I am going to do a post about this you should definitely read if you feel like you need some guidance with this. Once you know how much you have available to pay off your debts you can then see what needs to go where. If you paid the minimum to each account how much would you have left over? Then whatever is left over, like I said before, can go into the debt you have chosen to pay off first.
Once you have this plan in motion try and make it as automatic as possible. Set up Direct Debits or standing orders each month right after you are paid to go straight to paying this off. This means that you don't have to think about it, it is all done for you. Automation is a lifesaver when it comes to paying off debt because you can't forget to pay it, you can't just decide not to pay as much this month. This helps you be strict with yourself without much action.
Create Something Visual
Create something visual to see how well you are doing. Create a tracker and set small acheivable goals you can reach regularly to keep you motivated. If you have something that you can look at every day and tick off often this will give you the push you need to keep at it and not give up. You want to think of it as a positive thing so reward yourself.
Finally, you just need to stick with it. Again, it can be frustrating and it can sometimes feel like you are getting nowhere but if you just keep going and keep giving yourself smaller goals to achieve you can keep your motivation high. The beginning will be hard. You will probably tell yourself it is pointless, you will make mistakes and you will forget some of the steps above but just forgive yourself and move forward. Eventually it will become second nature.
What has helped you pay off your debt?