Concrete Steps Toward Getting Out of Debt - Foundation Series | FaithFi
January 9, 2023
Concrete Steps Toward Getting Out of Debt - Foundation Series
Faith & Finance with Rob West
As a new year gets underway, a lot feel motivated to do things like lose weight, cut back on social media, and get out of debt. Then, New Year’s motivation wanes. Rob gives you practical ideas for using a new year’s resolution for 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, yes, get out of debt. Unfortunately, New Year’s “motivation” often wanes quickly. So today, we want to give you practical ideas for turning a new year’s resolution into genuine progress — at least in the “getting out of debt” area.
Well, as you may know, every so often on our Monday program, we like to revisit the five basic things you can do with money. Here they are: You can earn it, live on it, give it away, owe it to someone or the government, or you can grow it for the future by saving and investing. Earn, live, give, owe, and grow.
Today, we’ll focus on the fourth of those: owe.
Again, many people, at the first of the year, resolve to get out of debt, or at least make progress on reducing their debt. But motivation often wanes quickly.
To stay motivated, you need to have a plan. You may remember that a few days ago we mentioned the idea of making your resolutions “SMART.” S-M-A-R-T. That stands for Specific— Measurable— Attainable— Realistic— and Timely.
So let’s start with this specific thing related to debt …
1. FIND OUT WHERE YOU ARE. By that we mean you need to have a concrete understanding of how much you, to whom, and what the terms are, including interest rates. You need to know that because, for example, it’ll make much more sense financially to attack a credit card debt that’s at 18 percent than a car loan that’s at 3%. As you catalog your debts, we suggest you list them in order from the lowest balance to the highest.
2. 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’ll help you avoid further debt.
3. TELL SOMEONE WHAT YOU’RE DOING. (Credit to financial writer Matt Bell for this one). 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.
4. CREATE A SPECIFIC PLAN FOR PAYING DOWN YOUR DEBT. Now, 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.
To continue the example, let’s say your minimum payments total $300. So you 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.
And 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 is clear and purposeful.
THE NEXT STEP
After you get all your credit cards paid for, you can then start attacking other debts that may be at much lower interest rates, such as car loans 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. Again, first, you need to get a clear picture of where you are, then commit to not taking on more debt, and finally, create a clear, easy-to-implement plan that you stick with — not just in the early weeks of January but throughout the months ahead.
And if you have an accountability partner, you’re much more likely to succeed.
If you’d like to connect with a financial coach who can discuss your situation and help you implement a plan, we can help with that. Just go to FaithFi.com/connect.
On this program, Rob also answers listener questions:
Should you take Social Security retirement benefits early or take survivor benefits after the death of a spouse?
How do you know if you need a fiduciary adviser?
When is it a good idea to buy long-term care insurance?
Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to Questions@MoneyWise.org. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app.
