A few years ago, I was heavily mired in debt, 10k to be exact. 10k doesn’t seem like a huge amount but when you are lost and not having any stable income, at times, things can really seem hopeless. That was the lowest point in my financial life. Thankfully, with much focus and perseverance, I was able to claw my way out of it all.
My eventual victory over my debt was probably the most liberating feeling I have ever felt in my life. And if you’re currently working hard to get out of your own debt situation, I hope this article will motivate you in one way or another.
Firstly, you will need to have a clear picture of all your debt. The most devious of debts are credit card debt and credit line debt. They tend to be tied to heavy interests and it’s imperative that we, as much as possible, do not get involved with them.
Remember, while you are attacking your debt, you will also need to defend yourself from more incoming debt invasion. If your spending habits aren’t being checked and are allowed to continue as they are, you will fail. No two ways about that. So, control your spending and start to become disciplined.
Secondly, you will need to continue paying the minimum monthly payment for all your debt. The reason is clear, if you don’t, you will be charged unnecessary overdue and other late payment related penalties. So, make it a goal never to see another one of these again.
Thirdly, you will need to analyze which debt is the most urgent to pay off. This should be the one that incurs the highest interest rate. This will go against my idol, Dave Ramsey’s, advice. Dave said that we prioritize paying off the debt with the smallest amount over the one with the higher interest. His reason is that debt is not a mathematics problem, but rather, it’s a behavior problem. Philosophically and in theory, that sounds reasonable. But in practice, it’s impractical and the cost for not paying off the one with the higher interest rate is too much for people, mostly who are already at the brink of destress, to bear. I love you Dave, but I need to disagree with you on this one.
Lastly, If we are paying off all our debts that have all equal interest rates, then we can attack the ones that are smaller in size first. For us to witness our debt being cleared off one by one is very powerful. And it go a long way in our eventual success with our money and overcoming our debt.
Remember, these steps will not work if you do not have a sustainable income stream. If you don’t, they won’t work. You will need to set aside a significant amount of your income every month to paying off your debt. You will need to do some math. If you have a 20k debt, and you can put aside 1k a month, then you should pay off your debt between 20 to 25 months. Why not 20? Because while you are paying off your debt, the hard truth is that you will still be incurring interests. But they will get smaller and smaller as time pasts. If you can only afford to pay half of that amount, then you will take twice as long to see your debt becoming zero.
I don’t think I need to tell you that at this point of time, it’s important that you live like a monk as much as you can. There should be no justification for you to go on shopping sprees, cafe dine-ins, and even vacations to exotic destinations. But feel free to reward yourself with an trip to the cinema if you hit certain goals that you have set. But no gold classes tickets, not yet.
What if there’s someone willing to lend you some money to help you pay off your debt? Some people will say it’s ok and some will say not. But I think that if someone is willing to help you, it’s acceptable to accept their offer. Without those hefty interest rates, we can reach our debt free goals sooner. But the most important thing is that we must SWEAR UPON OUR KIDS’ LIVES that we will pay them back on whatever basis of the agreement that we have agreed on with the person who have lent us the money. There’s no worse behavior than to betray the trust of those who have given theirs to us.
I hope this article has given you a clear method on how you can go to war with your debt. All the best!