Financially I was able to more than double my emergency fund, open and fully fund an IRA and save an additional $3, 000. Personally, my stress levels went down, my self-esteem got better and my belief in myself got stronger. I had set this goal for myself in January 2015 to be debt free by January 2016 and I accomplished my goal almost seven months early. I proved to myself that I can do anything that I set my mind to. That kind of faith in myself and my abilities is the best thing to come from being debt free. It's priceless, really. What practical tips do you have for people looking to pay off their debt? Ask yourself what is necessary and what's not. Be brutal in this assessment. Debt holds you back in a myriad of ways, and the best thing you can do for yourself and your future is to get out of it! The things that made the biggest difference for me was cutting back on costs and making more frequent payments to beat the interest. I made 3-6 payments each month on my debt. My interest accrued daily so if I made a payment on a Monday and another one on Friday it meant there was less time for the interest to grow.
How to Start Paying Off Debt…Even When You Have No Extra Money Of course, those extra dollars have to come from somewhere. In my article, 97 Easy Ways to Save Money I shared some ideas that we used to start paying off our debt. In it, I also estimated the savings per month for each of the money saving strategies. They ranged anywhere from $4 per month up to several hundred. Saving that extra $50 could be as easy as dining out one less meal per month. Or it could be one less trip to the salon. Even if you're already living on a bare bones budget like we were, you may be able to find ways to cut your budget for necessities like groceries and utilities ( This is the simple system my family used to cut our grocery budget in half. ) You could also use lots of little money saving strategies that add up to $50 per month. So if you're like we were and resigned to the fact that you'd still be paying your student loans when your kids were in college, think again. Try to stop focusing on the total you owe or past decisions you've made.
You can change your financial situation drastically by saving just a little extra money each month. If you put even a few extra dollars per month toward your loans can cut YEARS off the payback period. Yes, paying a little bit extra each month can make a huge difference and help you start paying off debt faster. So what does saving money, even just a little bit, do to help your bigger financial outlook? Here's how it works… Let's say you have a car loan: $5, 000 at 4% fixed interest. If you make the minimum payment every month, it will take you another 4 years to pay off it off. If you find a way to save $50 per month to put towards the loan, you can pay it off one year and five months sooner! (You can use a debt calculator to find out the actual debt pay off for your particular situation. ) In addition, you'll save almost $200 in interest. Plus, you'll have freed up an extra $150 (minimum payment plus $50 extra payment) per month to pay off other debt, save for emergencies, or to help you become a stay at home mom.
Just start somewhere! Even a small additional payment each month can add up fast. After all, it's only $50. Are you trying to figure out how to start paying off debt? Have you become debt free already? Share your experience in the comments.
I'm constantly asked how one should pay off debt. It's extremely hard to answer, because it's generally based on personal experiences and preferences. That being said, I firmly believe in paying off debt and saving money at the same time. Why? It's because that's how I did it and I showed it was possible to pay off all your debt and build yourself a healthy emergency fund. Not only is it possible, but it's great to start your new financial journey with money in the bank. As some know, I worked my way through $50, 000 worth of credit card debt ($75, 000 overall) from irresponsible borrowing and spending. There is no one to blame, but myself. I have learned a valuable lesson from my journey into and out of debt, so I want to make sure I share all of the valuable pieces that I can. Paying off my debt and saving at the same time changed my money mentality. When I was in debt, I was making spending number one and saving number two. After I paid off my debt, I switched and make saving number one and spending number two.