Any good anti-debt blogger (like me!) will be able to tell you all kinds of ways to pay off your debt. There’s methods, and tips, and even a certain way to hold your nose. Ok, maybe I’m kidding about that tips bit. Or is it the nose part? I’m confused. Seriously though. There’s a debt snowball, made famous by Dave Ramsey, then a debt avalanche, then a debt blizzard, and so on.
But, the one key thing that you absolutely have to have if you want to pay off your debt is knowing your debt. You’ve got to know the number, the type, and even the method of your debt. If you want to overcome your debt, you’ve got to know it inside and out, upside and down.
How Much Debt
Just how much debt do you really have? If you’ve do a budget regularly, (if not, start) take the time to write down how much you owe to everything you make a payment to. Keep in in a spreadsheet and update it periodically. Put a big bold total across the bottom. Is it a high number? Use that as motivation to pay it down. Is it a low number? Use that as motivation to finally get rid of it all! Watch the total get smaller and smaller. (If you’re an spreadsheet junkie, create a line graph for the total!)
What Kind of Debt
There’s a common argument over whether there is any such thing as good debt, or if it’s all bad debt. I happen to think that argument is a little too black and white and that it really depends on your situation. If you know how much debt you have (see above), now you can categorize it. This really isn’t as hard or as complicated as it sounds. We’re talking simple categorization here. Is the debt on a credit card? It’s credit card debt. A mortgage? Mortgage debt. Car loan? Car debt. Put them all in a category, and total the categories.
How Did you Get Your Debt
This is going to sound silly, but now take a hard look at your debt and decide how you got it. Some of it will be obvious. You got that mortgage debt by buying a house. The car loan by buying a car. But, I also want you to go a bit further. Did you buy that car (or the house) because you absolutely needed a car? Or did you buy it because you had gotten bored with the old one? Categorizing your credit cards this way will be a little harder. It might be easiest to go through old statements and look at purchases. What are those purchases? If you’re buying groceries and other small priced consumables on your credit card, but not paying those charges off right away, that’s a good sign that you have a problem. Determine why you’re spending the way you are, then find a way to fix it.
Now, Get Rid of Your Debt
Now you know how much debt you have, what kind of debt it is, and how you got it. Let’s get rid of it. If you’re comfortable sharing your totals (even anonymously), joining something like the debt movement can be a great help. There’s tools out there that can help you, like Ready for Zero. If you want to go it alone, here’s a simple method for starting. Go back to the list of categorized debt. Start with the category(-ies) that are un-secured (that means they have no asset like a car or house tied to them) and start paying those off with every spare penny you have. You can sort them largest interest rate to lowest interest rate, or smallest balance to largest, or however you want, really. Just start paying them off. Get them taken care of, then start on the smallest of the secured (tied to assests) debts. Rinse, recycle, reuse, repeat.
If you feel like sharing, tell us in the comments below how much debt you have. How much have you paid off?
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.