4 simple steps to eliminate debt
Getting out of debt is hard. Being in debt is hard. Finding steps that are simple enough for the most overwhelmed to achieve can make the difference between staying in debt and living debt free.
I was in my 40s, divorced, with two kids, working a job that paid the bills (almost), and drowning in debt and stress. Finally I reached my breaking point. I calculated my total debt, which totaled in the mid 300s! My monthly payment, just for my debt, was over $4,000. And my average monthly income was not much more than that (being under $5,000). This meant that if I was to only make minimum payments on my debt I only had a couple hundred dollars every month for everything else. That includes groceries, gas, utilities, dog food, activities for the kids. It quickly became obvious why I kept adding to my debt instead of lowering it.
And so I made a list of actionable plans to reduce my monthly spending, to increase my debt payments, and eventually become debt free. If this sounds like you, if you need guidance to recover the security that comes with knowing you can pay ALL your bills on time and still afford groceries, read on to discover the system.
Determine you debt/income ratio
Lower necessary monthly expenses
Eliminate unnecessary monthly expenses
Apply additional funds to accelarate debt reduction
Follow a system that results in a debt free life
Calculate your debt/income ratio
The first step is the most painful. It’s discovering exactly how much you are in debt. Yep! Add it all up, find that grand total. While you’re looking for the grand total, write down the minimum monthly bill for each debt you have. Once you have your grand total and a list of all your minimum monthly payments, add up those minimum payments so you know what your exact total minimum payment for the month is. Next pull out your work paystubs. If you are salaried, this is easy, how much do you make a month. If you are paid hourly (like me), take the last several paystubs add them up and then divide by the number of paystubs you have. If you are paid monthly, there it is, your average monthly income. If you are paid biweekly, multiply that number by 2 and there’s your monthly income.
Now compare your total minimum payment for the month to your monthly income. That is your debt/income ratio. If that ratio scares you a little bit, that’s ok! Our next step will work on that. So take a deep breath and keep reading to learn how to lower your monthly expenses.
Lower NECESSARY monthly expenses
Necessary expenses include housing, food, debt payments, etc.. Lowering these is both an art and a science. And we’ll start here, but we’ll continue to finesse these expenses as our journey progresses.
First, how much interest are you paying on your credit cards? If it’s over 21%, it’s too much. Call your credit card company and ask for a reduction in your interest rate. If you haven’t been making regular, on time payments, the answer might be no. If that is the case, we’ll try this again in a couple months when you’ve shown that you can make your payments on time. If the answer is yes, then while you haven’t lowered your monthly bill, you have lowered how much interest is accruing so after you make your first payment, your principal balance goes down and from there your minimum monthly payment also goes down.
If you can’t lower your monthly interest, transfer that balance to a low interest (or in some cases 0% interest for 12-18 months). This will also reduce your minimum monthly payment and all that money you are paying goes directly to principal, again to further reduce your monthly payment as time goes on.
Second, housing costs? I live in a small city, but it ranks in the top 11% of most expensive places to live. Gross. So my housing cost is about as cheap as I can go and still have space for two preteens of opposite genders. What I mean is I have a 3 bedroom, 2 bath home, I certainly can’t rent a place like this for cheaper or get a better mortgage. So my housing cost is about as good as it gets. But is yours? Downsizing is always an option. And going from owning to renting means you lose a chunk of debt and hopefully selling will give you some money to apply to other debt. But even simply finding housing that saves a couple hundred bucks a month makes a difference.
Third, groceries and eating out bills. The easiest way to lower these costs is to eliminate or minimize eating out. The cheapest the kids and I can eat out is for $16. But for $16 dollars I can get ingredients for 1-2 meals and both of those meals will have leftovers. If you regularly eat out, eliminating it entirely might be overwhelminging and undoable, for the time being anyways, if that is the case minimize those meals as much as possible. Cut back by 1-2 meals a week and every month cut back again. It makes a difference.
Eliminate UNNECESSARY monthly expenses
This task is a bit time consuming, it probably took me 3-4 hours to get through everything. But in the long run, it was so worth it! Print out your most recent statement for 1) your bank and 2) ALL of your credit cards. Grab a highlighter and your statements and sit at the table. I want you to go through line by line every statement and highlight every recurring expense you spent money on this last year.
Once you’ve highlighted all your recurring expenses first I want you to total it up. How much are you spending on subscriptions and memberships and monthly app fees? Is your total shocking? Mine was. But once I had that number in hand, it made cutting out these expenses much easier.
Now go through your statements and every time you find a highlighted line ask yourself: is these a necessary expense? do I use it enough to justify the expense? does it bring me enough joy to justify the expense?
If you decide it is something you want to continue spending money on, great! Move on to the next item. If you decide it is something you can eliminate, do so. Right now. If it is an app, pull your phone up, open the app, go into setting and cancel your subscription. While you’re at it, if you have an iPhone go into your setting, click on your apple ID, click on subscriptions and use this to quickly eliminate some subscriptions you have on your phone. It also might show you a few you hadn’t found yet (especially if they are not charge monthly).
If you can’t cancel the subscription on your phone, pull up your computer and go to their website. Can you cancel the subscription there? Check to see if you can log in on the website, usually they have options once you’re logged in to cancel subscriptions or memberships. If you still can’t cancel, you might need to pick up your phone again and make a call.
I know this is time consuming and frustrating. But trust me, the upfront time you put in now WILL pay off, figuratively and literally.
Apply additional funds to accelarate debt reduction
Now you’ve lowered your monthly expenses. We’re going to take all those funds (even if they’re only $10, but they won’t be). And we’re going to apply it to the principal balance of our debt. Voila! Applying extra funds to the principal means you 1) won’t accrue as much interest and 2) will lower your next month’s minimum payment.
These are the beginning steps to eliminate debt and live in a space of financial security and the freedom that entails.
Follow a system that results in a debt free life
I have been overwhelmed by debt. I’ve looked up ways to lower debt, reduce spending, make more money. And yet still, month after month I added another $100-$1000 dollars to my overall debt! I was living above my means and seemed incapable of ever bringing the total debt down to zero. But when the stress of it all finally broke me, I took all that information I had gleaned from YEARS of reading about achieving financial indepence and created a system that works for me. A system that is simple for anyone to replicate.
If you want a simple system that will methodically reduce your debt until you can achieve financial freedom for good, sign up for an indepth class created for people like you. The first 10 people to sign up this week will be enrolled at a 25% discount for a total of $19.50!
After reorganizing first my mindset and second my finances. I reined in my spending and began paying off larger chunks of debt. I’m no longer relying on credit cards to get through the last week of the month. Instead I’m applying additional funds to my debt and lowering it month by month as I progress to towards financial independence. I want this for you too! If you’re ready to release the stress and burden of being in debt and ready to take action and eliminate debt enroll in this class. Click the button to start your journey towards financial freedom!
Even if you’re not ready to go all in on eliminating debt, I have something for you. Changing patterns requires a shift in your mindset. Use the form below to get a printable bundle on financial organization and developing an abundance mindset to help you undertake your own journey!
Get the FREE financial organization AND develop abundance mindset bundle
Start the debt free journey with a mind shift towards abundance and then organize your fiancia situation to easily incorporate budget changing strategies.
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