Debt Weighing You Down?: Pre-Step 3

Nothing like a good ruck for a solid workout. This is not me, nor did I do it this weekend, but I do like to go for a ruck every once and a while, just throw 30lbs in a bag and start walking...simple not easy. When I think about debt, or this step here, I think about rucking... Why? Because I'm carrying 30 extra pounds that I don't need to. Debt is the same way, we choose to carry it, but unlike a ruck we generally do not realize how much it weighs us down and prevents us from accomplishing so much more.

Now to get into the final pre-step. You will have some of this from step 1, knowing your net worth. At this point you have a picture of your income, net worth and have started to make inroads into your budget. This week we are going to focus on handling those debts or otherwise known as those liabilities on your net worth. From your net worth you should have a list of your various debts and you know that is responsible for decreasing your net worth. The faster we eliminate those the faster we increase our net worth.

1) List the Debts (Smallest to Largest)

This is by far the most proven method to help you get out of debt. Focus on the smallest one at a time and start working it from there. You will hear others talk about doing it based on highest interest rate first, which no doubt can save you some money depending on how bad your debt is but overall it will not allow you to focus and see progress, so you may get stuck when you do not see progress. The best success enables you to see progress along the way.

I’m a Project Manager by trade, run many large and small projects. Teams get burnt out quick over long timelines, they fail to see the end and stop along the way. As opposed to the move to a more agile approach that focuses on small wins to achieve success.

This works with everything we do, it is how we learned to walk, how we get strong lifting weights or learn to ride a bike. You start somewhere small, see progress and keep pushing yourself along the way.

2) List out the minimum payments required for each debt

Now that you have those debts, let’s see what those minimum payments add up to and what is leftover from your budget. If you do not have enough left to cover the full breadth of debts, then I hate to say it, but you need to figure out how to increase your income. It is time to find a side hustle, take an extra job, sell some stuff or anything you can do to increase the income. This is where knowing the picture can help motivate you and change your behavior.

Sometimes we get in the repetition of just paying the bills as they come in and thinking we can afford the next thing when it comes in. That all works well until one day you are waiting on the paycheck to come in to pay that major bill, or you cannot pay that Credit card in full like you expected to when you made those charges.

Seeing this tangibly in front of you changes the way you think about it. Knowing how you are going to spend makes you think about where you spend and why you spend. This is where you can start to change your mindset.

3) Roll that into your budget and pile on anything extra to the smallest debt payment (After you have a $1,000 Emergency Fund)

Now to get started paying off month to month. Now you start to see how you really can live, where you can really cut back to make more payments against those debts. If you focus enough you can pay this off faster than you believe you could.

Please don’t start till you have the Emergency Fund set. Is it enough, absolutely not but you are bet than 42% of the population. Yes, less than 42% of people have less than $1,000 in savings. So if you are one of those 58% that had more, it’s ok, use that discomfort to motivate you to get those debts paid off and get that extra cushion setup.

4) Keep Going!!

Now keep an eye on it month to month and watch that number tick down. Watch those small debts roll off and those debt payments increase. As you pay off each amount you are going to roll that payment into the next one and pay that one off, quicker and quicker till they are all gone. Just stay focused month to month and keep looking over at your numbers. If it helps put it in Excel and setup a chart, income per month/quarter, debt remaining per month, then look at that as you get your budget together each month to give you that extra motivation.

I stepped a bit into the payment of your debts, but that’s ok. If you have been following along you know step 1 is 1,000 emergency fund, then step 2 is paying off those debts. This step we just covered is all about getting a picture of those debts, knowing what is in front of you and getting an idea for what you are about to tackle.

Now if you have completed these pre-steps you are ready to go, ready to tackle that debt, increase your net worth and get started on a path to peace and independence.