Debt can present a major hurdle to reaching financial goals. Setting aside money for retirement or saving money for a house, for example, are more challenging when you’re juggling student loan or credit card payments.
The good news is that with a little planning and some discipline, it’s possible to make a dent in your debt, and perhaps even do it faster than you planned. Plus, you don’t have to deprive yourself of having a life in the process.
Steps to Help Pay Off Debt (And Still Have a Life)
If you’d like to potentially pay off debt quickly, while still having a little fun, try following this roadmap for doing both.
1. SET YOUR TARGET.
Take a look at your total debt. Add your student loan and credit card balances, outstanding personal loans and car loans—all you have. Then ask yourself what your realistic time frame is for paying a portion, or even all of it, off.
For example, let’s say you have $30,000 in student loans and you want to reduce total over the next 24 months. How much of that can you reasonably pay down in that time? $5,000? $10,000? Choose a goal that’s achievable while leaving some wiggle room in case you need to adjust your plan later on. It may depend on several factors, including your other expenses and your income, which brings us to…
2. CREATE YOUR DEBT PAYDOWN BUDGET.
Once you have a target payoff number in mind, figure out how it’s going to work with your budget. Look at what you’re spending each month. How much income do you have left over? Is there anything you can trim down or cut out altogether that would free up even more cash for debt payments?
Do leave a bit of room in your budget for fun. If you’ve eliminated all the extras, consider adding back one relatively inexpensive “want” that can keep you from feeling completely deprived. You’re less likely to slip up that way.
3. DRAFT YOUR PLAN OF ATTACK.
What you have to decide next is how to order your debt payoff. For example, you could pay down your debts from the lowest balance to highest, or vice versa. Another way to rank them is according to their interest rate.
Generally, prioritizing the highest-interest-rate debts saves you money in the long run. If you’re working on a 24-month plan and you have debts with a double-digit interest rate, think about tackling those first.
Snowballing your payments—making extra payments to one debt, while paying the minimums on everything else—can be a useful way to pay off debt fast. Once you pay off your first debt, treat yourself to something fun! Reaching financial goals is worth celebrating. Then roll your largest payment over to the next debt on your list, continuing minimum payments on the others. Do this until you’ve paid off all your debts.
4. AIM FOR A WIN RIGHT AWAY.
One of the hardest things about paying down debt is getting—and staying—motivated. If you need a little push to get started, paying off one of your smaller debts immediately can energize you to keep going.
Let’s say you have a $500 credit card bill and $1,500 in savings. Use part of your savings to pay off the card to see instant progress on your debt payoff. An alternative could be using your tax refund or a salary bonus to pay off debt, so you’re not draining your savings.
5. REWARD YOURSELF FOR REACHING FINANCIAL GOALS.
Identify key milestones ahead of time and consider setting a small budget, say $50, to treat yourself each time you reach one. These could include paying off $1,000 in debt or clearing out a credit card. Recognizing your achievements when you hit a milestone can keep you from feeling bogged down by your debt.
6. GET CREATIVE ABOUT HAVING FUN.
Having a life and paying down debt aren’t incompatible. You may just have to find new ways to have fun without spending a lot of money. Look for free or low-cost events. Scan the web for deals or coupons for the places you love to go. Host a potluck game night with friends rather than eating out and seeing a movie. The more outside-the-box you’re willing to think, the more fun you can have without channeling funds away from your debt repayment efforts.
The Bottom Line
Paying down debt can take time, but having the right mindset can help make the process less of a chore. Understanding what you owe, mapping out a plan to lower your balances, and giving yourself some incentives to stay the course can get you closer to debt freedom without having to completely overhaul your lifestyle. If the strategy outlined here isn’t the exact right solution for you, it may still provide insight into how you can approach your debt repayments overall.