Home ownership can be exciting and rewarding, but it’s also a huge financial commitment. Renters don’t need to sweat fixing a leaky faucet or broken down air conditioner, but once you become a homeowner, those responsibilities become yours – and that’s on top of paying your mortgage, taxes, homeowner’s insurance, and other living expenses. This is why it’s essential that you prepare ahead of time for the new financial responsibility you’re about to take on. One of the best ways you can prepare is by lowering or eliminating debt.
How to Eliminate Debt Quickly
If you’re carrying a lot of debt, it’s a good bet your financial life is pretty stressful because you have no wiggle room in your monthly budget to cover unforeseen expenses. A home can create a lot of unexpected financial headaches, so it’s a very good idea to get debt eliminated or paid down so you can be less stressed and enjoy home ownership more.
Before you start on a debt payoff plan, you’ll want to create a monthly budget if you don’t have one already. I know, I know, the word “budget” is almost an epithet in today’s consumption crazy culture, but it’s essential to have one because you need to see where you’re spending your money and what you need to cut back. A budget will show you where you stand now financially and help you put together a plan of attack for your debt.
Once you’ve got a budget in place, then it’s time to put the debt payoff plan into action. Here’s how:
- Create a list of all your debts, including credit cards, car loans, credit lines, student loans, etc.
- Order the debts from lowest to highest balance.
- Plan to pay just the minimum payment on each debt except for the smallest one. For that one, pour every last penny you can scrape up into paying it off.
- Once you get your first debt paid off, congratulate yourself on a job well done! Cross it off the list and move on to the next debt and begin pouring every last penny you can find into paying it off.
- Repeat until you have all your bills paid off.
You should post the list of your debts in a conspicuous location so you can see your progress on a daily basis. Believe me, once you start seeing more and more debts crossed off the list and you feel your finances freeing up, you’ll find yourself even more motivated to get out of debt!
You might be wondering why you are not told to order your debts from highest to lowest interest rate. Yes, it certainly makes sense to eliminate the debts that cost you the most in interest charges first. However, it’s recommended that you start paying off your debts from smallest to largest regardless of the interest rate because you can eliminate the smaller debts more quickly, which is motivating and quickly frees up cash to roll into the larger debts. Even a small credit balance requires a $20 minimum payment, so eliminating the small balances quickly can generate a lot of extra cash flow you can use to pay down the bigger balances.
As you pay off accounts, like a snowball your available cash to pay off bills begins to grow. By the time you get to your largest debt, you have a lot more free cash and can get it paid down faster than if you had started paying off the largest debt first.
To free up additional cash that you can pour into debt payoff, you might also consider temporarily chopping out unnecessary expenses such as dining out, cable TV, etc. The sacrifice now will pay huge dividends later!
Get a Side Hustle
If you want to pay off your debts even faster, consider getting a side hustle such as an extra job or starting a side business. Side hustling isn’t so much about taking on an extra part-time job; it’s more about finding a way to leverage the skills you already have to make extra money. For instance, if you’re a network administrator, you could build computers or design websites for people on the side. Do you have a construction background? Maybe you could hire out your skills as a handyman on nights and weekends to bring in extra money. If you’re great with a camera, perhaps you could take photos for weddings or other special events.
If you’ve been in the work force for a good amount of time, chances are that you’ve accumulated a variety of useful skills that can be used to bring in extra cash. There’s also a variety of ways to make money on the side online through sites like Ebay, Craigslist, Elance, and Odesk. Get creative and really think about what skills you have to offer and figure out a way to leverage them for extra cash. Again, if you get creative, you’ll discover that there are a lot of great ways to earn extra money besides taking on another job.
Have a Strong “Why”
It’s super important to have a strong “why” before you embark on a debt payoff plan. In other words, you need to have a very strong reason for paying off your debt that will carry you through the times when you’re just sick and tired of the extra work and sacrifice.
Sit down and figure out the reasons behind why you want to get your bills paid off. If it’s to buy a house, then also put down the strong reasons for why you want to buy a home. List them out and put them somewhere you can see them every day. Dwell on them daily and imagine what your life will be like once you achieve your goals. This will help you build a strong “why” that will help keep you motivated.
If you pay off all your debt before becoming a home owner, the experience of having your own home will be that much more enjoyable. Remember, it isn’t just a mortgage payment you’re taking on, you’ll also have to pay for things like property taxes, homeowners insurance, HOA fees, maintenance, furnishings, remodeling, etc. Becoming a homeowner with little to no debt will make keeping up with the various expenses of a home that much easier, which means less stress for you.
If you have a lot of debt, put together a debt pay down plan and implement it. To get your bills paid down even faster, you might consider taking on a side hustle to bring in extra money. There are a million websites online with great side hustle ideas, just Google the term “side hustle” and see what comes up.
The key to sticking with a debt pay off plan is to have a very strong “why”. Why do you want extra money? Why do you want to buy a house? How will these things make your life better? Visualize what your life will look like once you’ve hit your goals on a daily basis and keep your goals where you can see them. Having a strong “why” will help carry you through when paying off debt becomes a grind.