How to Become Debt Free

Sorry to disappoint, but there is no quick easy overnight fix to getting out of debt. It’s going to take hard work. You didn’t get into debt overnight and you won’t get out of it overnight either. Persistence is key. 

The first step to becoming truly debt free is to admit you have debt, and that you may have a bad relationship with money. This step is crucial because until you admit that you actually have a problem, you will never be able to actually deal with it and improve. It sounds cliche, but it’s the truth, the first step is actually admitting that you have a problem.

Okay, I admitted that I have a problem with money and debt. Now what? Now you can set your goals and make a plan. Here’s how I set up my plan once I admitted I had a problem with debt and committed to making a change:

1. List names of all debts, categories (student loans, auto loans, credit cards, etc), balances, minimum payments, interest rates and due dates. Do this on paper. Don’t ask me why it helps to see it in your hand writing on actual paper, but it does. Once it’s on paper, put it into a more organized spreadsheet on the computer if you can. When I did this with our debt, I was shocked. I knew we had debt but I just got online statements every month and paid them as they came in. It wasn’t until I put everything down on paper that I realized that our debt was over $100,000 (not including the house). Over $100k in consumer debt people! That is ridiculously out of control!

2. List all monthly net income and sources.

3. Decide if you are going to sell any major assets (cars, investment properties, etc). Post your ads online once you have decided what to sell.

4. Decide how you are going to do your snowball – from smallest balance to largest, or largest interest rate to lowest interest rate.

I need to pause the list here because I need to touch on #1 and #4. Having a 22-24% interest rate on a credit card doesn’t always sink in. Especially since those high interest cards are usually the store credit cards with smaller limits (think Walmart or Target). Instead of only looking at the APR (annual percentage rate), I highly recommend that you look at how much you are actually paying to interest each month and how much is going toward principal. Most if not all credit card companies will show you the amount paid on your last statement and how much of your payment was applied to principal and interest. This was the biggest eye opener for me when I took a look at my Target card statement and saw that out of my $33 minimum monthly payment, $20.89 of that was going to interest! Yes, I am telling you that more of my payment is going to interest than the actual principal balance on the card. That’s right, I am paying $21 a month for $1,000 worth of household crap that I bought months ago and don’t even remember what it all was anymore! I highly recommend getting actual paper copies of your complete statements when doing your master list of debts and balances because then it will be in black and white, right there in front of you. Once you get over the nausea and sick feeling from realizing that you are giving tons of money a month away to these banks, then you can come back and finish up this list!

5. Get your spouse or significant other on board (if you are doing this with a partner) with your debt free goals/plan (trust me, it is so much easier once your significant other is on board! I will make a whole other blog post on how to get your significant other on board with your debt free plan later). Make the commitment to yourselves and to each other to become debt free once and for all.

6. Commit to the journey and set some rules for yourself. One of the most important rules to set is that while on this journey, you don’t charge anything else on the credit cards! Paying them off is only going to work if you stop using them altogether. Cut them up if you have to. I don’t care how you keep yourself from using your credit cards, just do it. 

7. Give yourself a goal date. I hate to call it a “deadline” because it reminds me of work and I hate my job, lol. So we will just call it a goal completion date! (It’s okay if this date changes from time to time.. In fact, it most likely will change because things will come up, constantly. For example, three weeks into my debt free journey, the plumbing under my house burst and I had to replace everything, setting me back $6,300. I paid $1,500 cash that we had saved and borrowed the other $4,800 from a family member because we just didn’t have it, but we sure had to fix that plumbing right away!)

8. Make a budget. Yuck. And stick to it. Double yuck. (More on making a budget later.. See the next blog “The Art of the Zero Sum Budget”).

9. Have an accountability partner. Instagram is a great way to find one if you don’t already have a friend or family member in your life who is ready to embark on the debt free journey with you. I met my accountability partner @debtfreepeach on Instagram and we’ve actually become great friends in the process of pursuing our debt free dreams! It’s great to have someone to share the wins, set backs and your goals with. Having a debt free Instagram is also a great accountability tool in itself. The community is extremely supportive (with the exception of a few cocky ones, who I’m convinced are lying in their posts anyway, lol). A lot of debt free instagrammers post their budgets and updates on their debt balances frequently, so if you find yourself posting your update and your balances increased, prepare to explain! I’ve learned that I actually think twice about buying some things now because I want to be able to update my Instagram and share that I’ve paid something off instead! Everyone in the community is at a different stage in their journey and this group of people has great advice!

10. Calculate the debt free equation and see if it’s working for you. Chances are that it is not working and that’s why you are in debt to begin with. The equation is simple:

Income – expenses = surplus of money left over

If you don’t have a surplus after all of your expenses are paid, then we have found the reason you are staying in debt! When I first wrote down all of our income minus our monthly expenses, I was negative. We were spending more money per month than we were bringing in. No wonder we were in $11,486 of credit card debt! We were using credit cards to pay for paper towels and toilet paper because all of our hard earned cash was going towards living expenses, car payments and credit card payments. (I am happy to say that now we do have a surplus of money at the end of each month, although it is a very small amount).

Most importantly, stick to your plan, but don’t beat yourself up if you get off track from time to time. Realize your mistake, pick yourself up, dust yourself off, and continue on the journey. Realize that it’s not going to be easy. It’s going to take some time, dedication and sacrifice, but you can do it, and you will do it!


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