Not Made Of Money

If you need to reduce debt, you may be feeling overwhelmed. Eliminating your debt is an honorable goal no matter where you are in your life. Reducing the amount of debt you have will give you more flexibility in your budget and leave you more prepared to face any of the bumps that life tends to throw our way. The hard part is, though, getting started.

If you find yourself getting stalled out each time you decide to tackle your debt, take heart. You’re not alone. It’s easy to get overwhelmed by the size of your debt and to just assume that you’re never going to be able to get out from under it. The key to reducing your debt is to create a plan and start working it. To that end, I’ve put together a few steps to get you rolling:

To reduce debt you need to start by creating a budget

Before you can cut debt from your life you have to be in charge of your money. You have to know how much you have each month and where you’re going to spend it. Start this month by writing down your income and listing every payment you will make this month. Don’t forget to budget an amount for flexible costs like food. Next month, you can revisit your budget to “fix” any oversights you experience this month.

Put extra money you have towards reducing your debt

Now that you have your budget in hand, you know exactly how much money you have to send to your debtors. Of course, you already budgeted for your minimum payments, but you should also have a budget item that shows your extra debt payment. Send that entire amount to one debt to maximize your impact on that debt.

Track your progress as you eliminate debt

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You should begin by listing all of your debts in one place. This list will become the measuring stick for your debt reduction progress. Cross off each debt as you pay it off. This list will motivate you to continue the trek towards paying off debt.

Inspire yourself to stay on track with your debt reduction goals

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If your debts are too large to see quick progress, I would suggest using other tools to help you stay driven. For instance, one family we know did a little “Jeep” thermometer when they were paying off their car. They drew a Jeep figure and marked sections off for every $500 they owed on it. Then, as they made payments, they colored in the sections. By the time the entire thing was colored in, their car was paid off.

Stop incurring more debt

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The most important key to reduce your debt is to stop creating it. Now, as you send all of your extra money to debt payments, you may find yourself tempted to use your credit card when small emergencies pop up. I would suggest, instead, that you build a small emergency fund before you start working off your debt. $1,000 should be enough to cover most problems. You can always pad that account after you get rid of your debt. Most experts advise an emergency fund that will cover 6 months of living expenses. However, each situation is unique and you need to plan for what is best in your situation.

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