Concrete Steps Toward Getting Out of Debt

As a new year gets underway, many people feel motivated to do things like lose weight, cut back on social media and especially, get out of debt.

Unfortunately, New Year’s “motivation” often wanes quickly, so it’s helpful to have practical ideas for turning a new year’s resolution into genuine progress.

Getting out of debt, especially consumer debt, is a great resolution because this obligation puts a drag on your overall finances. Getting those debts paid off will improve your financial situation tremendously and provide a great sense of freedom in your finances.

To stay motivated, you need a plan to make your resolution “S-M-A-R-T,” an acronym for Specific— Measurable— Attainable— Realistic— and Timely.

First, start by finding out where you are. You need to have a concrete understanding of how much you owe, to whom, and what the terms are, including interest rates. You need to know that because it makes more sense financially to attack a credit card debt that’s at 18% than a car loan that’s at 3%. As you catalog your debts, list them in order from the lowest balance to the highest.

Second, and this too is very specific: Stop adding to your debt. As the old saying goes, it’s hard to get out of a hole if you keep digging deeper. You may want to stop using credit cards and instead move to a debit card or cash for your spending. That will help you avoid further debt.

Third is an idea from financial writer Matt Bell. He says, “Tell someone what you’re doing.” In other words, ask someone to hold you accountable to your plan to get out of debt. It’s remarkable how much it helps to have an accountability partner when it comes to following through on what you’ve committed to doing.

Fourth, create a specific plan for paying down your debt. There are different ways to approach this. Perhaps the easiest method is to commit a specific amount to debt reduction each month. Let’s say it’s $500, and you have five credit cards. Pay at least the minimum balance due on four of your cards, but pay as much as possible on the card with the lowest balance.

For example, if your minimum payments total $300, pay that, but then pay the remaining $200 toward the lowest-balance card. When you focus your payments this way, you’ll be able to pay off that lowest-balance card soon.

Then, when it’s paid off, you’ll keep paying $500 a month on your debt, but now focus your attention on the new lowest-balance card. After a while, when that one is paid off, you keep paying $500 a month and put most of the money toward the new low-balance card.

This approach of fixing your overall payment at the same amount each month and attacking the lowest-balance card will create a steady sense of progress that you’ll find encouraging.

Note how this approach is S-M-A-R-T. It’s Specific— Measurable— Attainable— Realistic— and Timely. It’s not vague at all. It’s clear and purposeful.

After you get all your credit cards paid off, you can then start attacking other debts that may be at much lower interest rates, such as car and school loans. If you were paying $500 a month against your credit cards, that $500 is now freed up to accelerate payments on your other debts.

This process of creating a systematic plan for paying down debt has worked for many, many people and it can work for you. If you need practical help on managing debt reduction, the FaithFi app is a great resource for this purpose.

You can also listen to the related podcast on this topic.