"So. You've got debt."
Having debt is no fun, is it? You work hard for your income, only to have it crippled by your debt payments. Your remaining income seems to be barely enough to pay the rest of the things you need. With a 5-year term on your car loan and a 10-year term on your student loans, it seems like you'll be in debt forever. (And you might, if you aren't smart with your car loans.)
Do you look forward to a time of your life without debt, when you can use your income on things you want instead of only on what you need?
Getting out of debt quickly IS possible! No, I'm not talking about debt consolidation. I'm not talking about getting your loans forgiven, either. I'm talking about a disciplined approach with a driving intensity.
There's no secret math formula, no hidden techniques. It's just maximizing the amount of money available to pay on your loans, so that you are able to watch the balance drop. Fast.
Do you believe you can do it? Dr. Henry Cloud said, "We change our behavior when the pain of staying the same become greater than the pain of changing." How are your pains? Does it hurt more to stay the same, or to make some difficult changes?
Getting out of debt quickly will not be easy. But neither is living paycheck to paycheck! If you're going to be miserable anyway, you might as well be working toward a worthy goal.
The three keys to a speedy debt reduction is not complicated. Simple, yes; easy to implement, no. But with the right motivation, you can be completely debt free in just a couple years or less!
1. Increase Your Income
The first key to getting out of debt quickly is to increase your income. Of course, this is obvious. You didn't need me to tell you that. But hopefully, I can give you some ideas of how to do it.
It may surprise some of you to hear this, but... did you know that there are more than 40 hours in a week?!? Yep, there are exactly 168 hours in one week. How are you going to use those hours to your benefit? Sure, about 50 of those are spent sleeping, and for many religious folks, working on Sunday isn't an option. But that still leaves plenty of time in the evenings and on Saturdays to work some extra hours!
Does your full-time job offer overtime hours? Grab all that you can! (Especially if you get overtime pay!) Are you due for a raise? Ask for one (properly)! Be the best employee you can be, so that your supervisors recognize your value and pay you for it! If you don't have good income opportunities at your current job, you might consider looking for a new one that pays better.
What about income outside of your regular job? You could get a part-time job (or two, or three). I'm not talking about fast food; find a part-time job that actually pays good money! Deliver pizzas. Clean houses. Mow lawns. Drive for Uber or Lyft. Find out what people don't want to do themselves, and do it for them!
If you can, moonlight using your main skill set. If you have a valuable skill, become a consultant. Speak at events. Give trainings. Opportunities are endless! You just have to think creatively about what value you can provide, and find a way to monetize it!
Once you've earned additional income, take that extra cash and throw it on your debt. If you can earn an extra $1,000 (or more!) each month, imagine how quickly your debt balances will drop!
2. Decrease Your Expenses
The second key to dropping debt fast is decreasing your expenses. Again, I didn't need to say it. But how many of you know exactly what you spend your money on? We all know we should cut back on certain expenses, we just need to do it.
Start by creating a written budget. Write down all of your purchases and bills from the last month, and add them up. Subtract that total from your income, and see what's left over. Not much? Let's start cutting expenses.
Start with food. You don't really have to eat out very often. Make plans for your meals, and buy only what you need for those meals. Try using your local store's grocery pick up! Not only will you save money from no impulse purchases, many stores will substitute something equal or better if they're out of the item you requested. And they won't charge you for the substitution! Your item might get upgraded without you having to pay more! Use the time you would have spent wandering around the store in the comfort of your home, putting together the grocery list.
Next: entertainment. If you've taken key #1 to heart, then you won't have much time for entertainment anyway. Cut the cable or satellite subscription, and get Netflix or Hulu instead. In addition, many current TV shows are available for free on the network's website or mobile app. There's no need to pay for hundreds of channels you don't need when many of the shows you do want are available for free!
What about your retirement contributions? You may not have thought about this one since it's often taken out before your paycheck even hits your bank account. Remember, with this intense, disciplined strategy, you're planning on getting out of debt within just a couple years. Your retirement savings will be just fine without contributions for a short period of time. There will be plenty of time (and money) later to continue contributing after you're debt free!
Here's another expense you may not have thought about: taxes. (Don't worry, I won't suggest anything illegal....) Check out my other blog post on changing your W-4 at your employer to increase your paycheck instead of getting a large tax refund.
Once again, get creative! There are lot of ways to decrease your spending and still have a great life. Make it a challenge: "How much money can I save today?" Take that savings and throw it at your debt! Your debt will drop faster than the ball on New Years Eve!
3. Stay Motivated
The last key to dumping debt is to stay motivated. This is the most important key of all, because the first two won't matter if you don't keep at it!
It's easier to stay motivated when you can feel your progress. That is why I recommend the debt snowball method, where you pay your debts off smallest to largest, regardless of payment or interest rate. Make only minimum payments on all other debts, but put everything you've got into the smallest one! It won't take long for that smallest debt to disappear if you have taken steps to increase your income and decrease your expenses! Then move on to the next smallest debt, and make it disappear. Then the next one, and the next one.
I mentioned that this is the most important step. If you don't stay motivated, you'll give up and go back to the paycheck to paycheck life you were living. Getting rid of the smallest debts first gives you the motivation to keep going! Besides, you'll simplify your life by having fewer payments.
If you need additional motivation, create a chart for yourself, so you can visually see your progress. Remember when you were a kid and you made a paper chain out of red and green construction paper so you could count down until Christmas? Make one of those for your debt! Keep your progress at the forefront of your mind, so that you can stay motivated when the overtime hours get long.
Lots of people like you have debt, and lots of people wish they didn't. You now have a plan on how to rid yourself of it. What are you going to do about it? Why not give it a try?
(Aaron R. Burgoyne, CPA, CFE operates Spotlight Accounting, an accounting firm in the Salt Lake City, UT area. Spotlight Accounting provides forensic accounting, bookkeeping, and financial coaching services. Read other articles like this one on Spotlight Accounting's blog.)