Last week, we talked about the first step of getting out of debt, which is to calculate your total debt and accept this debt amount.
It can sometimes be shocking to realize just how much debt you really owe, but the faster you accept it, the faster you can get into action mode and actually pay it off.
There’s no point in wallowing in debt misery, and in fact, accepting your debt will help you move on to the next step of how to get out of debt.
Learn From Your Mistakes
Now that you know your total debt amount, it’s important you don’t repeat the same mistakes that got you in this mess in the first place. This means you’re going to have to completely change your mindset. You can no longer keep paying for today by borrowing from tomorrow.
There will be no more “YOLO” moments, or shopping sprees that begin with “I deserve this…”
To get serious about getting out of debt, you have to create a plan.
Create a Plan
Now that you’re in the right mindset, it’s time to go into the details of how you can get out of debt. Every goal needs a plan and a deadline, otherwise it’s just a dream.
How do you come up with your deadline? You need to figure out how much you can contribute toward your debt each month, and how long it will take you to pay off your debt with that monthly contribution.
Start by creating your budget. If you’ve never had a budget, it can be overwhelming, but trust me, once you have one in place, it will make everything else so much easier. Check out our post on “How to Create a Budget.”
By taking a deep look into your monthly budget, you can calculate how much money you can afford to put toward your debt each month in addition to the already required monthly payments. This is key: you need to contribute more money every month to your debt rather than pay the minimums.
Set a Timeline
Once you know how much money you can push yourself to contribute to your debt each month, you’ll have a viable timeline to get out of debt. Deciding on a payoff date is very critical.
Choosing a date that is too soon could backfire on you when you realize there’s no way that you’ll be able to accomplish it in time. But choosing a date that’s too far away will make you feel like you can be much more flexible in your debt payments and may cause you to lose steam.
Instead, pick a date based on your monthly debt contributions. For example, if you’re $12,000 in debt, and you pay $1,000 a month toward debt, it will take you 12 months to pay off your debt. But instead, reduce that by 20%, or in this case, about 8 weeks. Try and pay off your debt in 10 months instead of 12. Why?
Pushing yourself will help you stay focused on the goal. Rather than going on auto-pilot (ie. “Okay, I made my monthly debt contribution, that’s it”), you should always be working on ways to contribute more toward your debt so you can get out of debt faster.
How do you do that? Have a look at Getting out of Debt – Step 3!
Have you been trying to pay off debt? Have you settled on a debt payoff date yet? Have you had to change it?