Simplify Your Life by Paying Off Debt

Simplify by Paying Off Debt

source: meddygarnet

This week we’re talking about simplifying family life. Tune in all week for strategies and tips for every area of life, and if you’re looking for more in-depth resources, be sure to check out the Huge Simplify Family Life eBook Sale!

When it comes to finances, there’s lots of debate about whether all debt is bad, if you should use credit cards or avoid them completely, how you should budget and more. However, I think we can all agree that any debt adds stress to your life. Even if you’re not opposed to carrying a mortgage or a car loan, each month you have to pay those bills. That means you need to earn the money to pay them plus any other expenses, and that naturally takes away some of your freedom.

If you have additional consumer debt — credit cards with balances that you carry from month to month, student loans, personal loans, etc. — you probably deal with additional stress. And I don’t know about you, but when I have to make payments on debt rather than putting money in savings or buying something we need or want, it leaves a bad taste in my mouth as well.

Set a goal to pay off your consumer debt and simplify your life by not having to worry about those payments anymore!

For most people, this doesn’t happen overnight, of course. It takes commitment and forethought to make it happen.

To start, think about this — if you didn’t have your consumer debt payments each month, how much extra money would you have? For many Americans, the amount funneled toward debt each month would provide a nice cushion in the budget if it wasn’t being sent to the credit card companies instead. Having the freedom and flexibility that comes from no debt is a great place to be!

We’ve paid off our debt, so our focus right now is building up a larger savings account so that we don’t ever have to use a credit card for medical issues, car repairs or other necessities again, even with my fluctuating income. We’re also saving toward our next car purchase. We don’t need another car right now, but it feels so good not to have a car payment that we want to make sure we’re ready when the time comes!

So how do you pay off your debt? Like many other bloggers, I’m a huge fan of Dave Ramsey and The Total Money Makeover. Although most of what he writes isn’t new or especially unique, he is a very motivational speaker/writer, and after listening to The Total Money Makeover on CD, I was actually excited to pay off all of our debt so that we could “live like nobody else.”

Dave recommends the following “baby steps” for paying off debt:

1. Establish an emergency fund.

Before you start focusing on debt repayment — although you’ll obviously want to keep paying the minimum payments on your debts — put $500 to $1000 in savings. This money is for true emergencies, not for vacations, gifts or holidays, and should be kept separate from your main bank account as a safeguard so that you can’t dip into it on a whim.

2. Begin paying off your debts from smallest to largest.

While many financial experts suggest paying off your highest interest rate debts first, Dave recommends going about your debt repayment separately. To start, list all of your debts from smallest to largest, as well as their minimum payments. Add up the minimum payments of all existing dates. This amount will not change until all of your debt is paid off, even as you eliminate debts.

Make the minimum payments on each debt every month and funnel any extra money toward the smallest debt on your list until it is paid off. Then, take the money you were paying toward the smallest debt and begin putting all of that toward the next largest debt. Once that one is paid off, take the amount you were paying toward it each month (which includes the minimum payment for the first two cards plus any extra) and begin paying down the third debt.

Referred to as the “debt snowball”, paying off your debt this way creates momentum that helps you stay on task. Not only do you have the satisfaction of eliminating the smallest debts more quickly, but as the amount you put toward each debt grows, you’ll also see faster results on the larger debts. You may end up paying slightly more interest over time, but unless you’re very, very disciplined, it’s also easy to get discouraged if you’re focusing all of you efforts on a large debt to start and don’t see a ton of progress.

3. Look for additional income opportunities.

If you’re only paying the minimum payments on each of your debts, it will take a while to pay them off because the minimum payments are generally low enough that they barely make a ping in the debt after interest each month. Instead, look for ways to increase the amount that you’re funneling towards debt each month to see faster results.

Here are a few ideas:

  • Use gifts & bonuses for debt repayment
  • Sell collectibles or higher priced items on eBay or Amazon
  • Have a yard sale
  • Pick up a second job
  • Start a home-based business
  • Start using coupons and put your weekly savings toward your debt

Paying off debt isn’t the easiest way to simplify your life, but it’s one that will have a big impact on the way you live. It takes dedication and hard work, but the freedom that comes from eliminating debt is so worth it!

Does debt steal your freedom and peace? Do you have a story of paying off all of your debt through hard work and focus?