How to pay off debt
Feeling weighed down by debt? You're not the only one! 56% of gen Z and millennials are worried about their debt. Paying off your debt is the best way to reduce your expenses over the long run.
Here's a step by step guide on how to pay off that debt and keep more moolah in your pocket.
Make sure to also check out our podcast episode on this topic on Apple or Spotify.
Step 1. Have a strong enough ‘WHY’
Let’s be honest. Change is hard, so you will need to have strong enough ‘why’ to get you through those challenging times.
Focus on what kind of life being debt free will allow you to live, rather than just doing it because debt is considered ‘bad’
Don’t use negative self talk to motivate you - we want to be creating a positive relationship with money in the long run!
Step 2. Understand why you got into debt in the first place.
This is a SUPER important step that most people tend to ignore.
If you don’t work this out and ‘stop the leak first’, then most likely even if you make some headway with paying off your debt, you could find yourself back in the cycle of debt again
Common reasons why people run into debt: impulse shopping, spending more than they earn and putting the rest onto a credit card or BNPL, not paying attention to their finances, not planning for larger irregular expenses, not having an emergency fund
Step 3. Prepare a solid foundation.
Create and more importantly stick to a budget
Have a cushion (sinking fund and emergency fund)
Set clear boundaries for yourself. An example would be cancelling your credit card if that has been an issue for you in the past
Step 4. Get into the weeds
Most people don’t actually have a clear idea of what they actually owe
Start by writing out all your debts by listing out:
balance that you owe
minimum payments
interest rate
pay off date based on the minimum payments
Have a play around with how quickly you can get out of debt with different additional payment amounts - give his handy calculator a try
Step 5. Choose a method
The below are the most popular methods - both are based on making minimum payments on all debts then focus on paying off one at a time.
Snowball: pay off debt with the smallest balance first, and the debt with the largest balance last
Avalanche: pay off highest interest first, and the debt with the lowest interest last
Snowball method has the psychological benefit of people sticking with their plan since they can see more immediate results. Avalanche is based on paying less interest overall - however assumes that you are able to stick to the debt payoff and won’t get deterred from the first debts taking too long to pay off!
Just like a diet, the best method is going to be whichever method you will stick with in the long run.
Step 6: Supercharge your repayments!
Work overtime and or side hustles to get extra income to supercharge debt payment. Throw any bonuses and pay rises and savings found in your budget to your debt.
We personally eventually lived off one income to supercharge paying off our mortgage early
Step 7: Stay motivated.
Read stories of other people that have achieved what you want to
Partner up with a friend and keep each other accountable
Get a coach to keep you accountable
Celebrate small wins and break your debt into smaller amounts
If you have a long journey, make sure you treat yourself along the way!
Paying off debt can feel overwhelming at first and keeps many of us stuck in inaction.
Break it down into manageable steps, celebrate your wins no matter how small, and you will be debt free sooner than you think!
