It’s time to get serious about your debt. The "get out of debt" strategy
You’ve been avoiding your debt situation for far too long now. The bills are continuously piling high, the debt collection phone calls have increased from once a day to up to 3 times a day. Your anxiety and stress levels have also increased causing you to lose sleep. Your financial situation is starting to put a strain on your marriage. You’ve reached the point in your life where you feel defeated and just can’t seem to think about how you’re going to get out of this financial situation.Many of you have dreams and financial goals you’d like to achieve however, debt is blocking you from pursuing them.
Here’s the thing, you are not alone. I’ve had my fair share of financial setbacks that resulted in me being in debt more than once, which impacted me greatly by having little to no savings with no real financial plan in place. Working in the banking (mortgage) industry over the past decade has been a roller coaster ride. The industry is volatile and unstable at times. One minute the financial institution is doing “well” the next, the doors are closing. It is not uncommon for mortgage companies to close it’s doors due to changes in the economy, or institutions cutting costs simply to save money.
I’ve learned over time to strategically put a plan in place to prepare for those moments while also understanding that, my financial situation was only temporary and I could conquer what appeared to be the impossible. A large percentage of Americans are in debt. In fact, according, nerdwallet.com, “debt is a way of life for Americans, with overall U.S. household debt increasing by 11% in the past decade. Today, the average household with credit card debt has balances totaling $16,748, and the average household with any kind of debt owes $134,643, including mortgages.”
I know it may sound “crazy” but debt is only a temporary problem with a long- term solution. There is no “quick fix” to resolving your money woes however, there is a solution to your problem. If you’re ready to “kick your debt in butt”, I have the perfect strategy for you!
What is the magic number?
The first step to getting rid of debt is determine what the total amount is. What is the “magic” number you need to pay off your debt completely?
Let’s address the elephant in the room
This step doesn’t apply to everyone, however, I need to talk “tough love” here. Let’s address the underlying issues that got you in debt in the first place. I’m talking about irresponsible spending habits. Purchasing items you can’t afford while neglecting to pay every day bills. You have to come to a point where this type of behavior has to stop. It’s perfectly fine to treat yourself but not at the cost of where you end up in the situation you’re in now. Think about what you need to do now to discipline yourself enough to not repeat the same behavior.
A lot of people have an emotional connection to material things that stems from underlying issues such as insecurity. Having material items tends to make people “feel good” about themselves however, if your self-love is attached to material things, you’re going to have to do some serious soul searching. The object here is to not repeat the same behavior that got you in debt in the first place.
I’m no relationship expert, however I’m only going to tell you to assess the relationships around you. Some of you are in and around unhealthy relationships that have put a strain on your finances. It is easier said than done to completely cut off the source that’s draining you financially however, if you want to get serious about eliminating your debt you’re going to have to focus on the root of the problem to find a solution. If that means to discontinue enabling family and friends, then so be it. If it means to end unhealthy relationships, then that is what you need to do. You will not get out of your financial situation if you don’t take the necessary steps to address these issues.
Cut up your credit cards
I know it sounds harsh but, you have to go “cold turkey”. Cutting up your credit cards, denies you access to the source that has caused you to be in debt in the first place.
List all of the debts you owe on a note pad or an excel spread sheet that includes the dollar amount. It may be overwhelming at first to see the list of items, even the dollar amount, don’t fret, it will eventually disappear as time goes on.
The Action Plan
Create a repayment schedule that includes actionable steps to paying off your debt. Once you’ve determined the exact dollar amount, you can now tackle which items to pay off first.
Credit counseling can be used as a resource to help you with your debt issues. There are many agencies across the nation that specialize in helping people get out of financial debt while teaching them responsible spending habits. The Department of Justice has a list of authorized, certified Credit Counseling agencies to choose from by state
Prepare a budget using excel or budget software that includes your monthly bills, and the debt that you intend to pay off. Once you set a budget, stick to it! Try not to deviate from the goal which is financial freedom. Brown bag your lunches. To help you stay on track with your goals, “meal prep” your weekly meals, breakfast, lunch and dinner. You have no excuses to purchase food or snacks as the meals are already prepared for the week, packaged and ready to go!
Mint allows users to not only budget their finances but you can pay your bills on the app as well.
SEE EVERYTHING IN ONE PLACE Get a more complete picture of your financial life. We bring together everything from account balances and spending to your free credit score, net worth and more. MANAGE BILLS & MONEY TOGETHER Track and pay bills right alongside your account balances. You’ll know what's due, when it’s due, and what you can pay. (Note: bill pay available for phone and desktop.) SAVE TIME & MONEY With one place to keep track of your finances, there’s no need to log into multiple sites. Plus, we’ll give you savings tips to help with budgeting and debt. BUDGET BETTER Effortlessly create budgets you can stick to. To help you save smarter from day one, we even make a few for you based on your spending.
Mvelopes is a free budget app. You can add your financial institutions. Your transactions are sent to your account which makes it easy to track and manage your expenses.
Import your bank and credit card accounts and track your spending within Mvelopes • Use digital envelope budgeting system to organize and simplify your finances • Easily access or adjust your budget on the go • Categorized spending helps you make informed decisions when you shop • Inbox-style transactions makes it easy to stay on top of your budget every day • All-in-one accounts screen lets you view your checking, savings and credit card balances in one place
Goodbudget is a personal finance and budget app that helps you track and manage your finances.
Check envelopes balances (aka how much you have left to spend) while you're on-the-go * Expense tracking optimized for speed * Proven cash envelope budgeting method * Track your bank balances in addition to envelope balances * Live within your means * Schedule transactions and automatic envelope fills
Try negotiating with creditors an agreed upon amount for collection accounts. Once you’ve paid the account off, request in writing a letter from the creditor stating that the account is paid in full. Next, send the letter to the 3 major credit bureaus, Equifax, Experian and Transunion. Often times, creditors will not update their records accordingly once an account is paid in full. To remedy this, be proactive in sending your payment letter to the credit bureaus requesting that they update their system.
There are 3 ways to start paying down debt:
Tackle the high interest credit cards first. Why? The longer the repayment terms, the more interest you pay, especially if you’re only making the minimum required payment. For example, if you purchase a refrigerator that costs $1,000 with a 15.2% interest rate, (keep in mind that about 4-5% of your payments go towards the actual balance) so if you’re only paying $40.00 to $50.00 per month, you would end up paying around $368 in interest.
Transfer debt from high interest cards to low interest credit cards
Credit card companies including banks are always advertising low interest rate offers to lure customers in. One method that has been used to get rid of debt is to transfer your balances from existing credit cards to low interest rate cards. Double check with your current credit card company as well as the new bank to see if it’s really beneficial to transfer your balances. Read the fine print! Research if there will be any transfer fees, what the interest will be after the “introductory rate” and balance restrictions.
Start by paying off the balance of the credit card with the smallest amount
This method is typically used as a starting point to get you motivated with paying off your debt. Taking “baby steps” will result in gradually reducing your debt. Another thing to consider is, each time you pay off a credit card, you will have more money per month to pay towards additional debt.
Learn how to manage stress
Being in debt can be extremely overwhelming and can cause, stress, anxiety, depression and other health issues. My suggestion, is to find activities or hobbies (no cost-remember you’re saving money to eliminate your debt) that help reduce stress. Physical activities have been known to reduce stress. If you can’t afford the gym, there are hundreds of thousands of videos online that have at-home workouts. You don’t need a gym membership.
Start attending church or reading daily scriptures to help you get through the day. This will help you to remain positive and set the tone for the day.
While Yoga is not as strenuous as the average workout routine, it’s a nice change of pace. Yoga can help with reducing stress. The breathing techniques used in Yoga helps with centering your energy. This allows you to shift your focus from worrying about bills to calming your mind, which helps you overcome anxiety and the frustrations stemmed from your financial situation.
On the days where things become too overwhelming, opt for these quick relaxation techniques:
Deep breathing from the abdomen is a relaxation technique that forces oxygen into your lungs. Stress, anxiety, and frustration, leads to shortness of breath, and often times, other symptoms such as, sweating, fatigue, discombobulated thoughts. Take a moment to and either sit comfortably with your back to your chair, or stand if that’s more comfortable. Place your hand on your stomach and slowly inhale from your nose, exhale from your mouth. By slowing down your breathing, it relaxes the mind, muscles and you’ll feel a change throughout your body.
Rhythmic exercise or physical activity such as running, walking, swimming creates a rhythm that allows your body to focus on movement. As you continue to move your body, your concentration will shift from anxiety, anger or frustration, to relaxation mode, which will eventually calm you down. Keep moving until you’re at a complete ease.
Sitting in the same position for long periods of time may cause tension in your body. Stand up and stretch, releasing the tension in your body.
Listening to soothing music is a great way to reduce your stress. The University of Reno conducted a virtual relaxation research project, which surveyed the power of music directly related to relaxation and stress. “Music can have a profound effect on both the emotions and the body. Faster music can make you feel more alert and concentrate better. Upbeat music can make you feel more optimistic and positive about life. A slower tempo can quiet your mind and relax your muscles, making you feel soothed while releasing the stress of the day. Music is effective for relaxation and stress management.” The next time you find yourself in a stressful situation, plug in your headphones and use the sound of music to relax you.
It may take some time to achieve your goal, trust and understand that you will get out of debt. This is only a temporary situation that you can and will overcome. Always remember, that the “baby steps” you take today, is one step closer to your goal. A payment today, is one less payment tomorrow.