Debt causes many of us to stay up late at the kitchen table running the numbers, or tossing and turning in bed worried about what tomorrow might bring. Debt can come in many different forms including college debt, medical debt, car debt, or credit card debt. It can be easy to believe we are in debt because we have done something wrong or somehow are unworthy. In truth debt is common among us all and having debt does not say anything about ourselves. How we respond to our debt does.
The first step is to be honest about our debt. While we might be tempted to hide or “lose” bills that come in because they seem overwhelming and scary we must face our debt head on. It is important for us to create a spreadsheet, either online or by hand and to list all your debts, their interest rates, minimum payments and other information such as if a student loan is in deferment because you are in school. Depending on your debt load the numbers you see might seem hopeless but pause because you can indeed pay down your debt.
The second step is to reach out and ask for help. If you find yourself with a large debt you may not be able to dig yourself out all by yourself. You might need to reach out to a close friend or family member who will help you keep perspective and go step by step with you as you try to pay down your debt. You might also need to reach out to a free or low cost financial planner who can be more objective about your finances. Good financial planners will listen to you and your needs and explain things in easy to understand language. If they use language you don’t understand, ask for clarification. You do not have to travel the path to financial health all alone.
The third step is look at your budget, and if you do not already have a budget create one. It is important to understand how much income you bring in and what your expenses are each month. Depending on your job and your expenses these may not be the same each and every month. For example if you know you will be buying gifts for the holidays, take that amount and divide it by 12 and save that much each month. This is also a time to consider if there are outside income streams you could take advantage of such as adding some gig work such as driving Uber or putting up an extra room on Airbnb
The fourth step is to start paying off your debt. One popular strategic method for doing so is the “snowball method”, which can help you make more progress than if you simply pay down debts randomly. In this method you list all your debts based on interest rates. You then start to pay off the highest interest rate debt first, once the first debt is paid off, you then take the amount each month you were paying, debt and move on to the debt with the next highest rate. This method is called the snowball method because like a snowball grows as it rolls down a hill, each time you pay off a debt, the next goes quicker because you are paying less interest.
If you have lost sleep over your debt, or have been ashamed to discuss it, know you are not alone. While it may be tempting to get lost in your fear and uncertainty if you reach out to others who can help encourage you the journey is much clearer. Be honest with what you owe, and strategically consider how you might pay down your debts. While you might doubt it is possible just take a moment and imagine how wonderfully it will feel when you succeed and no longer have unmanageable debt hanging over your head. You deserve to feel that freedom and that joy.