We all have a past and for some of us that means we have amassed some debt — Ex-partners, ex-spouses, ex-roommates, student loans, retail therapy, unspeakable stupid shit or other life events may have caused you to rack up a bunch of outstanding balances $$. Ugh!! How stressful!! I realize this is a “no fun” topic. Honestly, when I got divorced it was a financial train wreck. I was one month away from going bankrupt before I sold the house (I needed the equity from the house to pay down the debts). Although I paid down my debts when I sold the house, I still had quite a bit of debt. I finally got to a place where I had a monthly budget and I could pay all of my bills (including my debt). Stability felt good and I reached a point where it was time to reality check my debt situation so I could get out of debt for good!
Step 1 – Start – Make a list of your debt, your monthly living expenses & how much you make
This sounds easy but truth is, many of us have mental blocks when we it comes to dealing with tough life situations. This first step is all about mindset and facing your current situation (no matter how ugly it might be). Start by making a list – on your computer, your phone, in a written journal – of everything you pay every month.
Step 2 – Know the Difference Between Debt & Monthly Living Expenses
It’s important to remember that “debt” is different from monthly living expenses. For example, you might have a credit card with a current balance of $1,000 and a monthly payment of $30 per month. Once you pay off the balance, you will no longer have the $30 monthly payment. Yeah!! However, if you have a bill like a cell phone bill, or a rent bill, these are bills that you will always have to pay. These types of bills are called “living expenses”
Step 3 – Gather the details of everything you owe
Create a spreadsheet or written record of everything you owe. Below is a list of the details I track as part of my debt management plan:
- Name of Debtor/Company you Owe
- Account Number
- Website URL/Customer Service #
- Monthly Payment
- Payment Due Date
- Monthly Living Expense or Debt?
- If “debt” also capture the following information
- Current Balance
- Interest Rate
Step 4 – Define Debt Management Goals for the Next 6 Months
We are now going to work with your “Debt” accounts. Take an honest look at your debt situation by answering the following questions:
- Reduce your monthly payments? Pay off debt with the lowest balances/highest monthly payment
- Stop throwing your money away on high interest payments? Pay off debt with lowest balances/highest interest rate.
- Do both: Reduce monthly payments & reduce high interest payments: Pay off debt with the lowest balances, highest interest rate & highest payment; consider debt consolidation loans.
Step 5 – Define Action Plans to Achieve Debt Management Goals
Once you identify your Debt Management Goals, you will have to think about, how much progress you can make over the next 6 months on each goal? And, what actions you need to take to achieve each goal. Getting out of debt is not going to happen on its own. You have to be deliberate about taking action to get out of debt and to stay out of debt.
Below is an example of a Goal/Action combination to achieve a financial goal
Goal: Reduce monthly payments in the next 6 months
Action(s):
- Double up on monthly payments on Credit card “X” for the next 6 months
- Transfer credit card “x” balance to a 0% interest credit card offer for 1 year; double up on payments
- Consolidate credit card x and credit card y into a single loan that has a lower interest rate and monthly payment
To help you on your financial journey, we have created a free Debt Management Plan in both a printable and spreadsheet format. And please let us know how you are doing, if you get stuck have suggestions, we here at Busy Girl Nation are here to support you during this financial transformation!
