Steps five and six to becoming debt free

Okay, we've made it really simple to pay down your debt (In theory anyway!) So, whats that you say? Your debt is paid off?

Now it's time to celebrate and then start to save.

Time to celebrate - after all the hard work, it is time to celebrate, doing so with cash only. If you've wanted something new and you now have the cash for it, go out and buy it. Of course, be realistic here, you don't want to spend all your cash. You want to start saving it.

Save - now is the time to start saving for retirement, adding to your emergency fund, your kid's college (if you are helping them through college), etc. Don't go on a spending spree and buy, buy, buy. Once you've had a time of celebrating, then save, save, save. No one knows how much money we will need for retirement. No one knows how much kid's college will cost in years to come. The best thing now to do is to save those $$ that would have went towards debt. If you were paying $500 on debt and your debt is all paid off, put that $500 in the bank!!! Instead of paying your debts, pay yourself!

Pat yourself on the back. You've done it, you've accomplished a great task. Congratulations!!

Step four to becoming debt free

Snowball, Snowball, Snowball…did I mention snowball?

And let me tell ya, I am NOT talking about that powdery cold white stuff either….

Now that you’ve written down your debts, taken ownership of them, and paid off the first debt, you’re ready to snowball.

Snowballing is really quite easy. You take the amount you’ve been paying on your first debt, (remember, its now paid off) and put it with the payment you’re making on your second debt you’ve focused on.

Example: if your second debt’s payment is $50, and your first debt’s payment was $20, you will now be making $70 monthly payments on your second debt. Do NOT take those extra debt dollars from debt 1 and spend them, SNOWBALL.

Also, don’t forget that any extra $ you find will also be added to that $70 now.

Once the second debt is paid off, you’ll take that $70 and add it to the next debt along with the regular payment and all your extra $ until all your debt is paid off, and so on.

Up Next: Celebrate and save!

Step three to becoming debt free

Okay, so, you’ve written down your debt, you’ve taken ownership of it, and now it’s time to start focusing all you’ve got on ONE debt.

Decide which one you’d like to focus on first. Many people will tell you to pay off the smallest first, then snowball that amount onto your next debt, and in most cases that is your best bet. However, if you have a large debt that has an insanely high interest rate, start there. It’s your choice how you want to do it, but regardless, now is the time to FOCUS FOCUS FOCUS on that one debt ONLY. You’ll still be making your minimum payments on everything else, don’t forget about the rest. Now, make the minimum payment on your one debt of choice, AND, add every penny you can scrounge up, to that debt. You’ll be encouraged when you see the amount of interest coming down and the amount you owe coming down. It doesn’t matter if it’s only $4 extra or $50 extra, ADD IT.

Also, if you make your payment at the beginning of each month or in the middle and then find you have extra $$ after you’ve paid everything, do NOT put that money aside until your next payment. As soon as you have it, make another payment in the amount you have.

It may cost you an extra stamp, but just think of all the $ you’ll save on interest. Not to mention it guarantees you wont spend it on bread or something silly. Just keep in mind, your goal is to pay it OFF, and this is a good way to work towards just that.

Once that debt is paid off, you can then snowball that amount onto the next debt. That topic is next!

Step two to becoming debt free

As promised, here it is. Step two, taking ownership of your debt.

Ever find yourself blaming other people for your spending habits? Your husband took you on a day trip, so you had to spend money. Even though he suggested a picnic, but you had to have takeout…get my point?

If you don’t realize it’s you and you only that can be blamed for it, you’re never going to get rid of it.

That is why, step two is taking ownership.

Once you take ownership of your debt, and you talk to your SO about it, you can really begin to work together to get things paid off. Forgive yourself, and ask him/her to work with you to pay it off. From that day forward, support each other in your journey to being debt free.

Next: Focus on one debt only.

Step one to becoming debt free

The first thing you need to do is write everything down. If you’re going to get rid of your debt, you have to mark it all down, every last dollar! This means your mortgage, credit cards, hospital bills, that $50 you owe your Dad…don’t leave anything out.

Sometimes you need to see it in black and white on paper in order to really know what you owe. A lot of times you’ll think it’s much lower than it really is. Once you’ve written it down, you’re usually in for a surprise.

Get a notebook or journal of some sort, and keep track. If you want, you can even post in my forum (link to the right) however, that’s not necessary, as long as you know.

Also, keep in mind that when you make a payment, it doesn’t mean your balance will go down that amount unless you have 0% interest (which is always nice!) You’ll have to wait until your next statement comes in to find out the amount left owing, unless the account has online banking.

So, start now, and we’ll make this a work in progress for the next few weeks.

Okay, now that we’ve covered getting in in black and white, hold tight, more to come!

Next: Taking ownership of your debt.