DEBT MOM WANTS TO KNOW: IS YOUR DEBT OUT OF CONTROL?
If your money feels messy, overwhelming, or completely out of control… you’re not alone. Take a breath- we’re going to fix this step by step.
In this post, I’m going to walk you through a simple 1-hour debt reset to help you get back in control. It’s not complicated, and we’re not looking for perfection- just a simple plan that you can follow.
This isn’t about fixing your entire life in one day. This post is to help you get back on track and start to reset your debt. This is a clear starting point so you can stop feeling stuck and move forward.
Give me an hour and let’s reset.
Now, grab a pen and a 3 sheets of paper. I find that writing everything out, putting pen to paper for this exercise, makes the information a bit more real; and that’s exactly what we want.
Step 1: Get the Real Numbers
On the first paper, in about 20 minutes, you should be able to write down all your financials. Start with your monthly income after taxes on the top of the page. Then list all your living essentials:
- rent or mortgage
- utilities
- groceries
- transportation (car + insurance)
- minimum debt payments
- Also include any entertainment, subscriptions, pet costs and any extra spending.
Just remember, the numbers don’t need to be exact, we’re looking for estimated costs to begin with.
Step 2: Find some breathing room.
You might want to take another breath. OK now here is where you’re going to take 10-15 minutes to look over your monthly expenses and spending. Here’s where you’re going to look at your non-essential spending and get real with yourself. Look for things you can scale back, cancel, or eliminate from your current spending habits. Maybe you can find a different less expensive alternative to save a little bit of money. The idea here is to find some money in your budget.
I find that writing down a phrase like, “I can find $_____ a month,” will help make that idea more concrete. So on your second piece of paper do just that. You’ll be surprised, that once you start looking for things to scale back, you can find money to put towards your debt. It might be $25, $50 or even $100 and that can really impact a credit card, when added to a monthly minimum every month.
Step 3: Focus on one debt.
In about 5-10 minutes you should be able to figure out which debt you want to attack. So under your statement of “I can find $____ a month,” Write down all your credit cards, loans, etc and list the balance, interest rate and minimum monthly payment for each. From there you have one question to ask yourself: snowball or avalanche. Circle the debt that you want to pay first. Make that your target and keep your eye on the prize. Pay the minimum on all other debts, but for the lucky selected debt, you’ll funnel all additional money, to pay that debt down. Every single dollar helps!
Step 4: Create your simple plan.
This next step takes just 5 minutes. Below your list of debts, write your selected creditor that will be receiving all the extra found funds. Write down the minimum payment, and how much extra you intend to pay every month, then total the two numbers. This is now your goal to focus on. This is just a starting plan, and things can be amended, but this gives you an actual directive and direction, and game plan for getting started.
Now that you have created a game plan, take another breath- you’re ready for step 5.
Step 5: Create an emergency fund.
So many people fall into the debt trap because of an emergency. An emergency fund is there for when life happens and you have a surprise expense. I like my clients to start with a small goal of $500 in their emergency fund. As they become more financially stable, and get control of their budget, the goal is moved to $1000 then $2000. Again, this happens gradually, not overnight. Make saving for an emergency part of your monthly expenses, and try to put away $20-$25 a week until you reach the first goal of $500. So take 5 minutes, to plan where you can scale back and find an extra $25 a week or paycheck to create your emergency fund.
From here, you now have a game plan and a few goals. Keep your 3 sheets of paper somewhere visible, like your refrigerator or bathroom mirror. Make sure to stay on track and be sure to have a weekly self check-in.
Oh yeah, the third sheet!
On the third piece of paper, is where you’re going to track the next 3-6 months of making payments on your selected debt. Also be sure to track your growing emergency fund. This is just for you to see your progress, and stay accountable.
Your only job this week is to follow your new plan, and check-in with yourself once. Start those new habits!
Just remember that these things take time, but it can be done!
In less than an hour you’ve now created a realistic plan to reset your debt. Congrats, you’re making progress, one step at a time, and that’s what counts. Debt Mom is proud of you.
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