I’m excited to have a great guest post today from Dr. Breathe Easy! Dr. Breathe Easy is a pulmonary and critical care physician… and also a great debt slayer.
I’ve been fortunate to get to know him over the past few months and I couldn’t wait until he had time to send a post my way.
Dr. Breathe Easy is going to show you how to get out of debt, FAST!! You’ll want to book mark this page and get ready to tackle that financial cancer you’ve been carrying for far too long…
Take It Away Doc
Looking to finally get out of debt and grow your wealth? Sadly, too many of us have fallen into debt faster than we anticipated, and owe more than we originally planned on owing.
Hopefully, you’ve realized by now that if you want to have a financially secure future, then debt has to be minimal if not gone.
We recently paid off over 230,000 in student loan debt between Mrs Breathe Easy Finance and I. It felt like getting out of bondage. It really does.
We are the type that believed in investing, rather than paying off debt. There is still a place for that, with lower interest loans. But, with the interest rate rising, we changed our stance a bit and just paid off everything.
It was a lot of hard work, as I had to pick up extra shifts despite working up to 80 hours a week as a doctor in training and having two young children.
We do not own a house yet, so that really helped. Getting out of other debt completely before buying a house is paramount.
If you want to know how to put your financial house together before buying a house, check out our post about reasons not to buy a house.
Once all debt has been paid off, we now have time to build our financial pyramid and optimize our finances to protect our assets.
You can also slay your debt like we did, no matter how insurmountable it may seem.
Thankfully, with the help of those that have “walked the walk” and gotten out of debt completely, there are many strategies that work and others that are complete myths.
Become Debt Free In Just 10 Easy Steps
These strategies have proven time and time again to help families get out of debt, and stay out of debt. We’ve taken the top tips and tricks to get out of debt, and laid out a 10 step process that will ensure you are debt free in no time.
1. Break the Habit
The first step in getting out of debt is committing to never get back into debt. You know the consequences of having a large amount of debt, you’re living them right now.
Do you really want to put yourself in this same situation in the future?
If credit card is your vice, you have to deal with it like you are fighting a war. Fight to win, take no prisoners.
Perhaps the best thing you can do to “break the habit” is to literally cut up your credit cards. You may have a million reasons why you think you should keep one or two, but that’s just the problem that got you here in the first place.
Cut up every credit card you own and commit to paying them all off as fast as you can.
Thankfully, we have self control and we never liked using credit card except for Sams club for the points. The 5% cash back is awesome for gas.
In fact, we had a line of credit of $20,000 we never used for 2 years. We got it as our last result emergency fund when I started training and could not do extra shifts.
We found the checkbook for the loan the other day and laughed at ourselves. Of course we cancelled it already.
2. Know Your Numbers
Did you know that only about 19% of families actually keep a written budget? Knowing your numbers, aka budgeting, is your financial map that will take you to your destination.
Without a map, how do you expect to get to where you want to go?
This doesn’t just mean reviewing your debt obligations. You need to sit down, write out all your debts, their balances, the minimum payments, due dates, and even the interest rates.
This debt tracking spreadsheet will do the hard work for you! Bonus, it’s FREE!
Keep track of these balances every time you budget, so you can see your progress and plan accordingly.
While we were tackling our debt head on, we kept a strict budget. Budgeting is a process and may require several revisions to get it right. It can take 3-6 months to finally get the perfect budget that works for you.
3. Cut Back On Spending
I’m willing to bet that once you have laid out all your monthly obligations, bills, and debt payments on paper, you would be able to find a few hundred bucks extra from unnecessary expenses that you could easily live without.
Some of the most common expenses that we often forget about are subscriptions, eating out, buying name brand clothing, etc.
Start by categorizing your expenses into wants and needs. Wants are anything that you pay for that are more of a convenience or luxury, but can easily be done without.
Needs are expenses such as food, shelter, water and heat.
Keep in mind that this step, for the most part, may be temporary until you get yourself out of debt.
Once you’re debt free and have the ability to afford some of the luxury expenses, there’s nothing wrong with enjoying life a little. But until then, they are not necessary.
4. Build Your Emergency Fund
Chances are that some of your debt is a direct result of an unexpected expense that you put on your credit card and are still paying off.
The point of building an emergency fund is to give you a safety net to avoid ever going back into debt in the first place.
A good rule of thumb to go by is to build a baby emergency fund of $1,000 and keeping it in an account that is easily accessible. This is not to be invested in any way, its purpose is to be completely available when an emergency arises.
This account is used only for emergencies. In other words, any expense that can be foreseen, regardless of what it is, is not considered an emergency. Auto repairs, home repairs, and other similar expenses are not considered emergencies, for example.
For families on incomes lower than $30,000, it is advised that you build your emergency fund to $1,000 if you can, otherwise start with $500.
We wrote many articles about this, but this one will get you started – 15 Dave Ramsey tips you wish you knew sooner
After the 1,000 dollars, you can then kick it up a notch and build 3-6 months of living expenses. That’s is the real emergency fund.
5. Prioritize Your Debts
Prioritizing your debts should be based on how urgent payments are due, and whether the debt is considered unsecured debt or a secured debt such as an auto loan or mortgage.
For obvious reasons, if you have debts that are a couple months past due, plan to pay minimum payments on everything, and any extra money you have should be thrown at these payments to catch them up as soon as possible.
Once you’ve planned to catch up any past due payments, list all your debts (excluding your mortgage, if you have one) from the smallest balance to the largest balance.
Once you have done this, we’ll explain how to pay these debts off in the next step.
6. The Debt Snowball vs Avalanche Method
Have you ever built a snowman? When building a snowball, you start by packing some snow together then setting it on the snow and rolling it across the ground.
As you roll the snowball, it becomes larger and larger as it picks up new snow adding to the snowball size.
This is exactly how the debt snowball works. In the last step, we prioritized all our debts (excluding the mortgage if you have one) from the smallest balance to the largest balance.
We begin by paying minimum payments on all the debts, except for the smallest balance debt. On this debt, we will pay any and all excess money we have to this balance to pay it off as soon as possible.
Once the smallest debt is paid off, we then take the minimum payment of the debt we just paid off, plus any extra cash available, and apply it to the next smallest debt balance until this is paid off.
As you see, the amount of money being applied to the smallest debt balance becomes larger and larger, thus paying each debt payment off faster and faster, thus “the debt snowball.”
The other method is the avalanche method mixture
If the interest rates of your smaller debt are significantly smaller than your larger ones, mathematically it might be best to pay the larger one first.
Whichever method you use, it required the same level of intensity and seriousness.
For more debate on the different methods, check out our post on Dave Ramsey is outdated, try our 12 toddler steps instead.
7. Set a Schedule and Follow It
Among the most common mistakes made by people working to get out of debt is not sticking to the planned schedule.
By sticking to a schedule and reviewing your budget, debt balances, and when payments are due on a regular basis, you eliminate the possibility of forgotten bills and increase your motivation.
Although a simple task, this principle alone will make or break your financial future. Choose a time frame such as every week, biweekly or every month to review your finances and plan for the future.
It often helps to keep a calendar and check off each time you kept your scheduled budgeting review. Over time, this will turn into a powerful habit.
8. Grow Your Income
I know what you’re thinking: “Sure, I’ll just go to the high paying jobs market, right next to the pie in the sky store.” Allow me to explain.
To start off, you’d be surprised at how many employers would be willing to give you a raise if you simply asked. This will only go so far, however.
Regardless of your current income, in today’s day and age there are countless ways for anyone to make extra money with only just a few extra hours per week.
There are plenty of ways to make extra money “delivering pizzas” or other things of the like, that will give you a boost to getting out of debt.
Here are a few ideas to make extra money and grow your income:
- Get a second job working part time in the evenings, or doing contract work.
- Sign up for Uber or Lyft and make money driving people around when you’re off work
- Sell unwanted items in your house in a garage sale, or on a popular neighborhood app such as “LetGo.”
- Do you have a digital skill such as marketing, social media management, writing, or advertising? Post your skill on a freelance website such as UpWork or Fiverr to make extra money.
- Take advantage of popular coupon apps that give you cash back and large discounts just for being a member of the app. Some examples of these are the “RetailMeNot” app and “E-Bates” app.
9. Reward Your Successes
Lets face it, getting out of debt can be difficult and requires a lot of patience. Included in your budget should be a small expense to reward yourself for reaching certain mile stones.
Regardless of how big you reward yourself (even if its just a few bucks or a lunch at your favorite restaurant), don’t underestimate the power of a little motivation.
Some who like to shop for clothing might reward themselves with $10-$20 to buy a new shirt at their favorite store. Others might want to go out to a movie.
Whatever it is, budget a small amount to reward your successes. The result will be added fuel to keep the momentum moving forward.
What we have done in the past was to celebrate with the extra money left is we were able to get under our budget. Lets say you budget $5,000, but you ended up spending $4,900 for the month, the $100 remaining is your spoil of war.. Use it as you wish.
10. Commit to the Future
Getting out of debt is not just a task that is complete once you’ve reached the finish line. The problem in the first place is found in the bad spending habits you previously had.
Make a commitment today, even before you are out of debt, to never go back into debt again.
Never forget the stresses and frustrations you have or had in your life when you had mountains of debt, and keep that as a remembrance that it’s not a place you want to ever be in again.
Light at the end of the tunnel
By following these 10 steps laid out above, you will be well ahead of the curve. Once you have achieved debt free status, your path to wealth will grow exponentially, enabling you to live the life you want.
Only this time, you aren’t putting it all on the credit card! Go forth and conquer.
Dr Breathe Easy Finance is a pulmonary and critical care physician by day and a personal finance blogger by night. Mrs Breathe Easy Finance is a former nurse/lactation consultant and now, a stay at home mum who also give insight into budgeting through the lens of a frugal physician wife. She has been posting more and more. Our goal is to improve financial literacy among everyone willing to accept the challenge. I figured, if I could help you breathe easy and better in my day job, why not apply the same principle to personal finance. Financial independence is our goal for everyone and we cater to the babies and toddlers of personal finance. Our mantra – spend less, save more, earn more and invest. Our main categories include budgeting tips, getting out of debt and general personal finance mix bag.
If you had to give one tips to someone trying to become debt free, what would it be? Let us know in the comments! 💡