The Ultimate Guide To Paying Off Debt

Sharing is caring!

There we were in the thick of it. The tenants had moved out of our rental property and left it needing close to $20,000 of repairs. We had just used up a good bit of our savings for unexpected repairs to our own home.

How the hell were we going to come up with the money, and how were we going to live paying two mortgages?  

In the blink of an eye, things went to shit. We were stressed and felt absolutely defeated.

After we were done feeling sorry for ourselves, we decided it was time to make a change. We were going to get started paying off debt, and this time for good.

And we did…even while living paycheck to paycheck.

Here is everything we learned and what you need to know about paying off debt, even if money is tight!

Disclaimer:  This post may contain affiliate links. This means I receive a small commission, at no extra cost, if you purchase using the links below. Please see my earnings disclaimer for more details.

What is debt?

Debt is something you owe, an obligation. In this case, debt is the money you owe to an institution or person.  

So, buying with credit means you are buying with borrowed money. This borrowed money is then stealing from your paycheck for the next months to come.  

According to CNBC, “the average American has $90,460 in debt. This includes all types of consumer debt products, from credit cards to personal loans, mortgages, and student debt.”

paying off debt

How to get started with paying off debt 

There are four steps to start paying off debt.

1. Budget

You have to make a plan for your money each month. When you budget your money, you can see the whole cashflow picture. Therefore, it allows you to see if you’re spending too much in one area and if you need to make cuts or changes to your budget. 

2. Save $1000 in an Emergency fund

I know you’re anxious to get to paying off debt, but you have to have something to fall back on in the event of an emergency.

So, put all extra money into your savings until you have $1000 saved up in an emergency fund.  

3. Make a Plan

Sit down and figure out how you want to tackle paying off debt. There are basically two methods for paying off debt.

Debt Snowball

List all your debts from smallest to largest. You make all your minimum payments, and then any extra debt payments go to the smallest debt first.

After that first debt is paid off, you move to the next debt on the list. And the amount increases like a snowball down a hill…overtime it gets larger.

Debt Avalanche

List all your debts from highest to lowest interest rate. Then like above, you start paying the debt with the highest interest rate first.  

4. Get started

Now all you have left to do is put your plan into action and get started!

Tips for paying off debt successfully

Stop using your credit card

This is one of the hardest things to do, but you have to stop using your credit cards. If you don’t have the money, you don’t need to buy it.

And if you happen to have an emergency, that’s what your emergency fund is for.

Change your money mindset

Changing your money mindset is a lifestyle change. You have to start thinking about money and spending money differently. 

You have to make a decision to live within your means and spend with intention. This means stop trying to keep up with the Jones’ and find contentment with what you have. 

Make budget cuts

Most of us have areas within our budget we can cut to save some extra money. Here are some areas that can use up a lot of our monthly budget.

  1. Groceries
  2. Subscriptions
  3. Gym membership
  4. Cut Cable
  5. Negotiate better 

Add to your income

Dave Ramsey says, “your most powerful wealth-building tool is your income.” Therefore, the fastest way to pay down your debt is to increase your monthly income.

So, figure out how you can make some extra cash. For example, get a second job, turn a hobby into a side hustle, sell some stuff around your house.

paying off debt

Common Questions about paying off debt 

Is it better to pay off debt or save money?

It’s essential to have money set aside for emergencies or unexpected expenses. Therefore, you want to have a starter amount in your emergency fund.   

But after you have that starter emergency fund, it is better to pay off the debt you have. You can’t start to build wealth if you have debt that is stealing your income every month.    

What is the best way to pay off debt?

I have tried both the debt snowball and debt avalanche. Personally, I (and many others) have had success with the debt snowball method.  

Using the debt avalanche method, you start with the highest interest rate, which is usually the highest debt for many people.

For me, I had $10,000 on my highest interest credit card. This was overwhelming and seemed impossible to pay off. And because I wasn’t seeing any wins, I lost motivation and gave up.

But, when we used the debt snowball method, we focused on paying off the smallest debts. We saw and experienced the small wins that eventually turned into big wins.  

The small wins kept us motivated as we continued our debt-free journey. Each time we paid off a debt, we got closer to the light at the end of the tunnel.  

Is paying off all debt a good idea?

Yes! Pay off your debt as quickly as possible to save you money in interest and free up some of those monthly minimum payments your making.

According to Magnify Money, “Americans paid banks $121 billion in credit card interest in 2019.”

That’s insane! Banks are getting richer from the interest we are paying.

The last thing you need to know about paying off debt

Just last year, we were in debt and living paycheck to paycheck. Living this way sucks…it takes a toll on your physical and mental health, relationships, and marriage.

We decided to make a change! We changed our lifestyle and mindset, paid off all our debt, and became debt-free.  

Now, it’s your turn to break the cycle. Stop using your credit cards, get your mindset right, make a plan, and crush that debt! 

If you found this helpful, I would love for you to share or pin it!  

Leave a Comment

Your email address will not be published.