There is an epidemic in America right now. We are bombarded with marketing messages for products on average 4,000-10,000 times per day. We are told that we need to upgrade our clothes, houses, phones, and cars. The average U.S. consumer spends $6,081 per month, and the average American has $5,733 in credit card debt. Statistics vary, but between 55% and 63% of Americans are living paycheck to paycheck.
The good news is that you are NOT average, and you do not need to live paycheck to paycheck, drowning in credit cards, and losing sleep over financial stress. There is a better way, and we can show you how!
The first step in becoming financially free is to get rid of your debt so that you can start taking steps toward saving, investing, and having your money work for you!
First of all, let’s talk about your debt because there are different types. You may have heard debt referred to as “good, bad, high-interest, or low-interest. To simplify the terms, we will call it “bad” and “good.” We will address your “good debt” later. For now, get focused on getting rid of your “bad debt.” Bad debt has a high-interest rate; the longer you have it, the more you pay ridiculous interest.
What is what?
| BAD DEBT (10% interest or higher) | GOOD DEBT (9% interest or lower) |
| -Credit card debt | -Mortgage debt |
| -Fines and parking tickets | -Student loan debt |
| -Delinquent or high interest consumer debt | -Car loans |
| -Payday loans | -Personal loans |
| -Medical debt | -Other debt that is current and low interest |
Here is what you need to know and what you need to do:
- Save a small fund of $1,000-$2,000 for emergencies so that you can handle small incidents life throws at you. These may include a speeding ticket, trip to urgent care, vet bill, car repair, etc.
- Make a list of all of your bad debts using a tracker (link).
- Automate the minimum payments. This will keep your accounts from going to collections, accruing late fees and additional interest, and starting to rebuild your credit. Be sure to note when they will be deducted from your account and the amounts, and be sure you have enough to cover it.
- Call your creditors to negotiate your amount due and interest rates.
- Aggressively pay off any bad debt. Bad debt is any debt with an interest rate of 10% or more. Don’t buy anything that is not essential. Don’t go out to dinner. Pause or cancel all subscriptions. No shopping. Stop wasting money and pay it off ASAP.
Example:
| DEBT IN ORDER | CREDITOR | TOTAL AMOUNT | MINIMUM PAYMENT | INTEREST RATE |
| Debt# 1 | Wells Fargo CC | $8,000 | $65 | 25% |
| Debt# 2 | Chase CC | $3,500 | $55 | 24% |
| Debt# 3 | Medical bill | $2,000 | $35 | 8% |
| Debt# 4 | Macy’s CC | $500 | $50 | 20% |
| TOTAL DUE | $14,000 | $205 |
How to do it:
There are two main ways to pay-off debt:
EXAMPLE:
| LIST OF DEBT | DEBT SNOWBALL | DEBT AVALANCHE |
| DEBT# 1 | $500 at 20% interest | $2,000 at 8% interest |
| DEBT# 2 | $2,000 at 8% interest | $500 at 20% interest |
| DEBT# 3 | $3,500 at 24% interest | $3,500 at 24% interest |
| DEBT# 4 | $8,000 at 25% interest | $8,000 at 25% interest |
Additional tips:
-Get everyone in your household on board. If you and your spouse row in the same direction, you will see progress faster, bond over your wins, and get creative with ways to save/earn money! If you have kids, make it into a game to see how they can help!
-Share your goals with your friends and family. Doing so will make it easier for everyone in your inner circle to understand when you decline offers to go to concerts or out to eat. They can celebrate your wins with you, and you may even inspire them!
-This is a great time to take on extra hours at work, work side jobs, get a side hustle, and do weekend work!
Get laser-focused and make it happen! Your future self will thank you!
