Money

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Steps to get out of debt

1.  Set up a savings account and fund it with $1,000 to start an emergency fund.  $1,500 may be needed depending on the area you live in.

 

2.  Cut up all of your credit cards.  In order to be debt free you will have to stop using credit.  That is why you funded your emergency fund in the prior step, so that you wouldn’t have to fall back on a credit card in the event an emergency happens.

 

3.  Pay off all debt using a debt snowball.  This is the best way to pay down debt quickly.  You will want to order all of your debts excluding your mortgage in order from lowest balance to highest balance.  Then start knocking them out with the lowest balance first.  You will still pay all of the minimum payments on all of the debts, but throw all of your additional income at the lowest balance first to get it paid off.  Once it is paid off, you move on to the second lowest balance debt.  The amount you will be able to throw at it will grow by the minimum of the first debt you paid off, and that is how the snowball starts rolling.




 

4.  Now that you have all of your debt paid off with the exception of your mortgage, you will want to fully fund your emergency savings account.  This should be 3-6 months of the cost of your expenses.  This also will depend on the area in which you live.

 

5.  You can now start investing more heavily in your retirement, while saving for college for your children and throwing the rest at paying your home off early.  These 3 things can be done simultaneously.

 

6.  Now that you are debt free and fully funded, all that is left to do now is build your wealth and enjoy life!

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