We see it all the timeall of a sudden you're ready to start adulting, buy a house, settle down, plant some roots and start building some equity rather than paying the landlord's bills.
But, a couple of factors stop many wanna-be homebuyers in their tracks: lack of down payment and high debt-to-income ratio.
Student debt, credit card debtyou don't even remember where the money went (or maybe you do), but suddenly it feels like you're drowning in debt. Don't get discouraged, and don't write it off as being a hopeless effort. Paying off your debt is absolutely within reach if you follow a few basic steps and get started now.
STEP ONE: Find out how much you owe.
(It's actually too bad that this is step one, because it's usually the most scary. You have to do it thoughliving in debt denial is not getting you anywhere!)
Do this by calling your bank, sorting through mail slips, going online, and parsing through the numbers. Once you know the damage, set your plan of action in motion.
An undeniable reality of debt is that it will not go away, and it will only get worse over time. But, because debt can feel abstract, it might be tempting to ignore it and put it off for a time when you feel more œready to turn it around. There is no better time than right now to start paying off your debt, and that's the truth.
STEP TWO: Establish a Budget.
First, take stock of your incomeand output. Look closely at and keep track of what you are spending and where(there's a ton of great mobile apps for that!). From this, calculate exactly how much money you can and should be setting aside for paying off your debts.
STEP THREE: Prioritize Payoffs.
Interest on debt accumulates over time, so if possible, pay off loans and credit cards with the highest interest rates first so that your debt doesn't snowball. If you feel intimidated by this task, try an alternate tactic of paying off your debts in ascending order (i.e., the smallest ones first), using the positive momentum of accomplishment to propel you toward paying off larger, more intimidating bills.
When planning your course of action, allot money for your minimum payments. However, paying only the minimum required each month will not help you pay off debt in a timely fashion (and it also plays into the hands of banks' interests). The longer it takes you to pay off your debt, the more interest it will accrue and the more you will be paying in the long run. Pay as much as you can possibly manage each and every month. Double your minimum payment whenever possible.
STEP FOUR: Set up auto-payments.
After you've determined how much you can pay each month, automate your payments. Almost all banks offer this service. This will ensure you never forget and also make saying goodbye to your cash a little easier.
STEP FIVE: Carry cash instead of credit.
It may sound old-school, but going cash-only is the most dependable, concrete way to track your spending. There is something dangerously effortlessand abstractabout paying for things with a credit card, and it's a reality that leaves many of us spending even when we shouldn't be. To get on the cash-only track, leave your credit cards out of your wallet and consider deleting any stored credit card information from websites you frequent.
STEP SIX: Unexpected cash should go toward debt payoffs.
Expecting a holiday bonus, tax return, or birthday gift? Resist the temptation to spend it on something œextra - even though you totally deserve it. Because you know what else you deserve? To be debt-free. We promise it'll be worth it when your debt is all paid off.
STEP SEVEN: Spend less than you could.
It's an inarguable truth that many people get into debt by living outside of their means. To get on the right path, consider living not just at but below what you the numbers tell you you can afford. Take a good, hard look at your monthly expenditures. Assess where you might be able to cut back - do you need cable or just hulu plus or netflix? Can you pack a lunch instead of going out to eat? Can you move into a more affordable apartment, or get a roommate? Can you trade in your car or live without one for a while?
Paying off your debt doesn't mean you need to live a miserable, antisocial life, but if you feel you can survive without something, it might be worth giving up if it aids your financial health in the long run. Link to And Then She Saved
STEP EIGHT: Work, baby.
If you can swing it, take on a side job or two. (Anything that allows for tips and flexible hours is great here. Babysitting or nanny positions, for example, can be very lucrative in major cities and often accommodate a full-time job.) Rent out your apartment on Airbnb and crash with a generous friend for a week. Look around your apartment for any items you neither use nor need. Are there things you can sell? If so, list them on Craigslist or eBay. Every bit helps.
STEP NINE: Get by with a little help from the experts.
Let the hardship departments at your credit card companies in on your situation. It's possible you'll be able to renegotiate the terms of your repayment schedule, lower your interest rate, get fees waivedall in the interest of keeping you from declaring bankruptcy. Also, credit counselingwill put you in touch with a professional should you need some serious insider advice. A great mortgage lender can also point you in the right direction and help you prioritize your efforts to get you qualified for a home loan in the fastest way possible.
Paying off debt is hard work, there's no doubt about it. Giving up things you enjoy can be depressing. As you chip away at your debt, and reach your goals, allow yourself some within-reason rewards - take an afternoon off and go for a hike, splurge on a mani-pedi, or enjoy a glass of wine that doesn't come from a box. But then get back at itthe dream of home ownership is within reach, you just have to payoff those high-interest loans like a boss to make it happen.
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