Debt Payoff and Freedom Resource Guide

Change your mindset and achieve debt freedom

Debt is the ball and chain that holds us back from living the life we want to live.  At first, using credit seems harmless until our spending gets out of control resulting in long-term debt.

The first step in debt elimination is an acknowledgment of your entire debt picture and an awareness of your spending habits. It may be hard to accept past mistakes, but completely necessary in order to remove the shackles of debt. In order to move from debt holder to debt freedom, you must accept your past financial mistakes and accept your role in getting out of debt.

Reason why you can’t get out of debt

John manages to pay off $30,000 in debt in 2 years on a $45,000 annual salary. While Jane makes $80,000 a year but can’t make a dent in her $30,000 debt. John is on his way to financial independence and Jane remains stuck. Why?

There are many factors that impact one’s ability to achieve debt freedom. For many, the biggest culprit is overspending. In the example above, Jane makes a great living but living way beyond her means. This leaves no money available to pay extra towards debt.

Changing your mindset

  1. Make a commitment to stop borrowing money. The first step in digging out of debt is to stop adding to the debt. This may require changes to your lifestyle especially if it is funded through credit. Put the credit card away and start saving money.
  2. Organize your debt. If you don’t know how much you owe or whom you owe, it’s difficult to create a plan to pay off debt. Organize and analyze your debt from credit cards, personal loans, home, and car loans.
  3. Prioritize debt repayment. Make a conscious effort to cut expenses and focus your attention on paying off debt. Every decision made around money should be filtered around debt repayment.
  4. Make extra cash and pay towards debt. Supplement your income by selling items you don’t need, get a part-time job or perform side hustles. Use the extra income to make additional payments towards debt which reduces the amount of interest paid.

Go through a budgeting process

A budget will help you understand your income, expenses, and debt. You need to know how much money is going in and where your money is going. This is the first and necessary steps in order to create a financial plan to achieve debt freedom.

Here’s what you’ll need to do:

  1. Calculate your income
  2. List and calculate your monthly expenses (housing, utilities, subscription services, food, etc)
  3. Calculate your debt and monthly debt payments (separate base on mortgage, credit cards, secured loans like a car note, student loans, and any other types of credit)

Increase your income and lower your expenses

There are two things you’ll need to do in order to pay off debt sooner. First, you must cut your expenses. Your focus must be on reducing the amount of money spent. If you’re continuously spending your income, then you won’t have the extra money to pay off debt.

The biggest impact on your financial status is a reduction of expenses. Reducing your expenses means reducing your cash obligations. Not only are you freeing up cash to use to pay down debt, you’re also decreasing the cost of your lifestyle in the long term. Eliminate or negotiate your subscriptions, plans with service providers. Find alternatives to housing and transportation too.

Secondly, once you’ve cut as much of your monthly expenses, you must increase the amount of money you make. You can do this by getting a raise at work or having a side hustle.

How-to guides

How to pay off credit card debt

If you’re only making the minimum monthly payments on credit cards, it can take years to pay off the balance and increases the amount of interest paid. Adding an extra few dollars to a credit card payment can help reduce the amount of time needed to pay off the existing balance. This can save you thousands of the total cost of the credit or loan.

4 Tips to Pay Off Credit Card Debt

  1. Have a plan. Create a credit card debt payment plan. List debt, balances and interest rates. Use either the debt avalanche or debt snowball method to repay your credit cards.
  2. Pay more than the minimum. When possible always pay more than the minimum payment amount. Check your credit card statements on the best-recommended amount to pay off the balances in 3 years rather than 20 years.
  3. Balance transfers. You might have credit card debt with high interest and can easily transfer those balances to a 0% interest rate card. This option is great especially when you’ve stopped relying on credit cards for purchases.
  4. Consolidate debt. It is easier to pay off one debt than to pay off multiple credit cards. If you’re able to get approved, consolidate your cards to make one easy payment. Again, stop using the credit cards and focus your efforts on paying off the consolidation loan.

Consider consolidating your credit cards through a refinancing loan. Our partner Payoff offers credit card consolidation loans to help you pay off debt.

Answers to frequently asked questions

How to pay off student loan debt

It’s important to reach out to your student loan lenders and get detailed information on your loans after graduation. This can give you peace of mind when figuring out your rights and options. Consider refinancing and making extra payments to pay the student loans quicker.