After our honeymoon, we came home to start a new life together. We were full of happiness for new beginnings as a married couple. Unfortunately, this was the defining moment of realizing we just legally combined the finances of two millennials with massive student loan debt. We had an unsettling negative net worth of a few hundred thousand. It was only a matter of time before the anxiety, depression, and uncertainty of our financial future began to cause detriment in our lives. LeAnn always hated the idea of owing someone money, even at the expense of obtaining multiple college degrees. While I have always envisioned a life of freedom and flexibility. I quickly realized my definition of enjoying life did not include working to pay off debt. After months of frustration with our finances, we decided changes had to be made. We made the decision to get rid of all our debt and embarked on the journey that seemed impossible.
We really didn’t know where to start but we knew something had to be done. We researched various methods for debt repayment like the Debt Snowball and Avalanche. There were multiple philosophies floating around about how to approach debt repayment. We evaluated various approaches and tried to determine what would work best for us. On our journey to pay off $400K+ worth of debt, we found that detailed action plans on steps to take for getting out of debt were few and far between. While the resources were available, we needed clear and concise steps to take to begin our debt free journey. We read many articles and blogs and eventually pieced our plan together. After a four-year intense journey to pay off six figure debt, we have compiled a meaningful and detailed checklist of steps you need to take for becoming debt free, ultimately leading to financial independence. After all, getting started is often the hardest part. Or in our case, knowing how to start the process. Our checklist gives step-by-step instructions to start your debt free journey. Follow the checklist and you will be well on your way to financial freedom.
Regardless if you have $5k worth of debt or $400k worth of debt like us, you have to start somewhere. Use The Debt Slayers checklist below to get started on your debt free journey.
Step 1: Determine your Why.
The first step for getting out of debt is to determine your why. As much as we would like to answer why it makes sense for you to be debt free, we can’t. Well we could give you a baseline like debt causes stress, depression, lack of savings, divorce, increased chances of not owning a home, and many other detriments. However, these reasons may not necessarily be your meaningful reason(s) to be debt free ASAP. We challenge you to ponder on the ultimate reason you need your debt to disappear like yesterday. Establish why you want to be debt free and how being debt free will allow you to live a purpose driven life by accomplishing your personal goals. Ignite the motivation from within and slay the debt!
- Establish WHY you want to be debt free
- Reflect & Meditate on life goals
- Dream Session (Think: mental vision board)
- Write Down Your Why
Step 2: Research Your Financial Status
After determining your why, the second thing you want to figure out when starting your debt free journey is how much debt you owe. If you are like us in the beginning, you probably have student loans with different servicers, credit cards by multiples providers, and other outstanding bills that might only be visible on your credit reports. It’s quite difficult to keep up with principle amount, interest rates, and account information in your head. That’s why we recommend spending 1-3 weeks just researching your debt liabilities. In addition, you will want to determine your financial net worth. Figuring out this basic calculation of Assets - Liabilities (debt) = Net Worth, will be easy once you track down your total debt number. This will allow you to see your financial status “big picture.” We recommend a few resources and tools below.
- Pull FREE Annual Credit Report AnnualCreditReport.com
- Discover outstanding bills on credit
- Write/type list of debts with contact information in a spreadsheet
- Setup online login accounts, if possible, for tracking balances and documentation
- Gather all of your financial information (Bank Accounts, Investments, etc.)
- Determine/Track Net Worth
- Setup up FREE account with Personal Capital
Step 3: Write out Debt Snowball
It’s easy to get discouraged while paying off debt so it’s all about using psychology to stay motivated on the journey. As a result, we recommend using the Debt Snowball. The debt snowball was originally made popular by Dave Ramsey and is the debt reduction strategy that consists of paying off debts from smallest to largest balance, while paying the minimum amount on larger debts as you go. We used the debt snowball and obtaining those weekly and monthly wins of paying off loan balances certainly kept us going. Here are three steps to get your debt snowball rolling J.
- Type out debts from smallest to largest in a spreadsheet
- Update and track the balance on debts as you make payments
- Print Debt Snowball list and Cross off the debts as you pay!
Step 4: Establish Monthly Budget
There is only one way to keep up with your money and that’s with a budget. Trying to track your monthly purchases in your head does NOT work. Especially, not for getting out of debt. Break out the pen and paper, excel sheet, and/or app on your smartphone and write down your income and your expenses. You will need to add structure to your finances to become debt free. Having a budget in place will allow you to forecast future expenses, track specific line item expenses, and understand what’s left in your budget to pay towards your debt snowball at the end of the month.
- Consolidate, summarize, and categorize your previous month(s) transactions.
- Create a Budget based on previous months transaction
- Analyze budget
- Find Areas to cut back on spending
- Create Budget with FREE app Everydollar
Download The Debt Slayers Checklist HERE. Good luck! You got this!