Imagine your life 6 months from now… You have the beginnings of a savings – a safety net that protects you and your family from any sudden unexpected financial expenses. You’re well on your way to paying off your debt, and for the first time in a long time, you’re optimistic about your future because you have a plan and the know-how to confidently navigate expenses. Life is good.
In fact, this could be your life!
There’s no secret debt solution trick or hack to follow. With a little guidance, you can be living that debt-free life you dream of. Half the struggle is often getting started. And the mental burden debt creates may threaten to derail your progress.
We have a plan for that! Here are practical steps you can take to manage your debt with a guided solution that can work for you.
Follow these 10 practical steps for debt solution – and you too could live a debt-free life!
Acknowledge the Problem
The first step may seem menial, but if this were a checklist, we would be building momentum. If you’re aware your debt is a problem, check this off and move on to the next step. But it’s important to realize a few things about debt…
Debt is common. So common, it’s beginning to become normalized. If you agree that most people probably have some debt, this is a problem. Debt shouldn’t be common or normal. This mentality prevents us from accepting debt as a problem. And if we don’t believe it’s a problem, we’re not actively trying or motivated to find a solution.
Another thing to realize about debt – there’s a stigma around it. It’s hard to admit you have a problem, because you’re then faced with the contributing factors you may have been avoiding that led you into debt in the first place. It may also be hard for you to seek help because you don’t want to talk about these contributing factors with someone else.
We need to change the script. Debt is common, but it doesn’t mean you have to live with it. If you’re more comfortable trying to solve your debt by yourself, I’ll help you any way possible. But if your mental health is impacted by debt, to the point where it’s preventing you to follow these tips, it’s important to work with a financial coach you trust to help you through the highs and the lows.
Assess Your Debt
Continuing with the momentum building, the second step is easy! Log into your credit card account(s) and any other accounts you have loans (student, car or personal) through. Write down your balance on each, minimum payments, interest rate, payment terms/length, etc. Then add up the balance to get a total debt amount.
Another easy step! Log into your bank account. Almost every bank has an online feature. Visit your bank’s website and get connected today. If you use multiple banks, log into those accounts too.
This is a great way to stay informed on your current financial situation, which leads into our next step.
Understand Your Cashflow
You’re able to view all the incoming and outgoing expenses from your online bank account. Start by adding up your monthly take home pay, after taxes. If you’re married or working multiple jobs, make sure to include those income sources too.
Next, group your outgoing expenses into 3 categories:
- Needs (rent/mortgage, service bills, transportation, insurances, minimum loan repayments, basic groceries
- Wants (dining out, clothes and beauty, holidays, gym membership, entertainment subscriptions, non-essential groceries, other)
Use our free Financial Planner to help with this step.
Make a Budget
Now that you understand what income is coming in and approximately the month-to-month expenses going out, you can now create a budget. Follow the 50/30/20 rule.
Your “needs” category should take up approximately 50% of your monthly after-tax income. Your “wants” category should take up approximately 30% of your monthly after-tax income. Lastly, 20% of your monthly after-tax income should go toward paying back your debt.
Modify this breakdown as needed.
Make a Debt Repayment Plan
Now you can start paying off your debt – but where do you start? There are different debt repayment strategies out there. My favorite is the snowball method where you pay off the smallest debts first for quick wins that quickly snowball overtime as you tackle bigger debts.
TIP: Taking your total debt and 20% of your monthly after-tax income, calculate your debt-free date. If you want to be debt free sooner, follow our next 3 steps.
Cut Back On Your Expenses
If you’re having trouble fitting your categories within this 50/30/20 rule breakdown, start by analyzing your “wants” category. See what’s in there that you can cut out to minimize your spending.
This may seem obvious, but avoid taking on more debt. Avoid putting any more purchases on your credit cards if you can avoid it.
TIP: If you have family, get their buy-in so that everyone is on the same page when it comes to spending less.
Increase Your Income
If you’re living paycheck-to-paycheck, and you’ve cut out the extra unnecessary spending only to find yourself still treading the waters of debt, you may need to consider ways to increase your income:
- Find a higher paying job
- Get a part-time job
- Start a side-hustle
- Ask for a raise at work
Get Help from a Professional
If you’ve followed all of my tips with little to no financial improvement, it’s probably time to ask for help.
What can a professional do that you couldn’t do on your own? I can help you:
- Stay accountable if that’s a challenge for you
- Stay consistent when stress and uncertainty tries to halt your progress
- Negotiate with creditors
- Consider debt solutions like consolidation or refinancing if they make sense for your situation
- Understand financial aspects when it comes to insurance or buying a car – basically everything school failed to teach us, I can help educate you on.
- Take the burden of planning and organizing off your plate. Debt is stressful enough. You don’t need any more work.
A financial coach helps ease the burden of debt, getting you on the path to financial wellness faster and easier than you can do it yourself. And because I help you make a budget, I plan for this expense so that everything aligns with your budget and financial goals.
The key to sticking to a debt solution is commitment. Creating an actionable, easy-to-follow plan that helps you progress towards paying off your debt. This is where a financial coach helps with staying accountable.
Another tip I recommend following is to celebrate your successes. This is why the snowball method is a popular debt repayment strategy. Paying off debt can take time and effort. Celebrating short wins will help you stay motivated and on track.
Managing your debt can be a challenging and overwhelming experience. However, by taking these practical steps, you can find a debt solution that works for you. Remember, it’s important to be patient and consistent in your efforts, and to seek professional help if you need it. With persistence and determination, you can overcome your debt and achieve financial freedom.
Eliminating debt can seem impossible and overwhelming, but you don’t have to feel alone and helpless in this journey.
Money Coach provides caring and qualified help to get you out of debt and on your way to financial freedom. Give us a call for a free consultation at 302-339-1296.