Step 1.) Income: Fun stuff first. What is your monthly take home pay from your main job? Maybe you have more than one stream of income. How about your monthly eBay sales or your small clothing consignment business? It might only bring in $100/mo but every little bit counts.
Step 2.) Expenses: Do you ever think to yourself, "Hey I have a job. I make decent money. So why am I always broke?" Make a list of your monthly expenses including, rent, mortgage, utilities, phone, internet, cable, car payments, insurance, etc. Once you have your list you can actually see where your money is going. You might even notice some areas where you could cut back and reduce your monthly expense.
Step 3.) Liabilities: Liabilities are debts that you owe to someone. Credit card debt, student loan debt, car loans... these are all liabilities. Order your liabilities from the highest interest rate to the lowest. Your credit cards will probably be the highest since most have an APR upwards of 19%! When you make your list, make sure you note the principle amount due, minimum monthly payments, and the interest rate.
Step 4.) Math: Take your total income and subtract your expenses. This is like a first tier of your net income. Then subtract from that your liabilities. This is like your net-net income and is what you have to work with for the month. I like to separate the expenses from the liabilities so I can see what I would be working with had I not racked up that credit card AND how much extra I will have every month once all of my debts are re-payed. It's a huge motivator for me!
Step 5.) Pay the Debt!: If you can swing it, take a portion of your net-net income and make a higher payment on the highest interest carrying debt. It might be your credit card and it might only be $50 extra per month but it's something. Once this debt is paid, move on to the next highest interest carrying debt on your list and pay that min payment + the $50 that you had going towards the credit card and so on and so on. I put this into practice myself and i'm already halfway through the credit card debt. It's the quickest way to do it and the cheapest. The longer you sit on that debt the more money in interest you are paying to the creditors, which is what they want! Don't give them what they want! Taking control and getting out of debt is empowering!
Are you in debt? What's your get-out-of-debt strategy?
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I love this! Step 2 is so me... I can't tell you how many times I've thought that!
ReplyDeleteThat’s true. Being in debt is stressful in itself. But if you know exactly what to do, you can take control of it. And having an action plan is the best way to easily identify the best ways to deal with it, and where your financials lie. It's also a good way to see if you’re on track in paying all of your debts and whatnot. Thanks for sharing!
ReplyDeleteCharlena Leonard @ Weidner Law