“A strategy, even a great one, doesn’t implement itself.” – Jeroen De Flander
In our last Debt Demolition post, we discussed how to select the best debt repayment plan for your situation. Of course, everyone’s financial life is unique, and it will require a bit more legwork on your part to evaluate which repayment plan is right for you. Once you do select a repayment plan, it’s time to go above and beyond to get your debt demolition on track.
HAVING A DEBT REPAYMENT PLAN ISN’T ENOUGH
It’s a common misconception that picking the right repayment plan is the big step when it comes to paying down debt. This isn’t the case. Yes, it works best when you have a debt repayment plan that mirrors your financial life, your repayment goals, and your budget. But the truly critical step is creating a strategy to pay off your debt faster and to pay less in interest over time.
Implementing a debt repayment strategy might be the most intimidating piece of your debt puzzle. There’s always the questions of how to pay off your debt faster, what strategy you should test out, and if you’ll be able to stick to your plan. These are valid questions, and it’s good that you’re honest with yourself about your concerns. The best way to ease your debt-related stress is to follow a step by step plan where you create your debt repayment strategy and develop a mindset that helps you stick with it.
STEP ONE: GET YOUR MIND RIGHT
The first step in creating a debt demolition strategy is getting your mind right. You need to change the approach you take toward debt before you can expect yourself to stay on-track with a repayment strategy. Debt is an emotional thing. Those in debt often feel angry with themselves, with their lenders, or with the experiences that have resulted in debt. More importantly, people have emotional attachments to specific debts. For example, you may feel comfortable with your student loans – but the credit card debt that was the result of a poor spending decision might really get you hot under the collar.
While I don’t recommend being “okay” with debt, I do recommend you use your negative emotions surrounding it to motivate you. In this situation, you aren’t the victim of debt. You are the one getting it done and coming up with a repayment plan. Living debt free will be an awesome new phase of your life, and you should pat yourself on the back for making progress toward that goal. Debt may be the enemy here, but it’s important to remember that you control it. When it starts to feel like your life is being controlled by your commitment to paying off your debt quickly, remind yourself of this.
STEP TWO: FIGURE OUT YOUR CASH FLOW
Being ready to pay off your debt won’t mean anything unless you’ve got an organized cash flow system. Automating your cash flow will help you to automate your debt – and stay on track to meet your goals. Personally, I believe in a hub account cash flow system (you can read more about that here). Even if you don’t choose to go through with setting up a hub account, I do recommend you test out the 10/20/30/40 budget plan. This will help you get your big-financial-picture organized, and is the perfect kick-off point to your repayment strategy.
STEP THREE: CREATE A DEBT HITLIST
I’ve talked extensively about debt hitlists and why I think they work. For one, I believe that putting a pen to paper and writing out your debts gives you a much better sense of what you’re up against. It clarifies the situation and can help you form your repayment strategy.
To create your hitlist, write out all your existing debts (consumer or otherwise) and make notes next to each. The notes should cover how long until the debt is paid, what the monthly payment is, what the interest rate is, and your emotions surrounding each. From there, you can evaluate each debt and prioritize them in a way that works for you.
STEP FOUR: PICKING A STRATEGY
Throwing money at your debt mindlessly will help you pay it off – eventually. But you don’t want eventually. You want to live debt free as soon as possible. There are a few different strategies that you can stick to that will help you get there. The first is the very popular snowball strategy. Essentially, this suggests that you start with small debts. Pay off what you can with extra funds you have on hand, or throw extra money at those small debts first. Once they’re paid, you can turn around and use the money that was paying them off to put extra money toward the next biggest debt.
This method works, but it has some flaws. First, we know that some loans are worse than others. If you have looming credit card debt, I recommend you start with that over a small student loan. Even more important than consumer and non-consumer debt is the interest attached to each. High-interest loans should always be prioritized first to avoid paying more money on them in the long run.
I also believe that if you have a particularly negative emotion attached to one debt, go ahead and pay that first. The positive impact that has on your mindset will continue to motivate you as you pay down other debts next.
STEP FIVE: TRACK (AND CELEBRATE!) YOUR PROGRESS
No strategy would be complete if you didn’t keep track of how you’re doing. I recommend tracking this debt payment progress monthly or quarterly. It can be a bit demoralizing if you check your balance more frequently than that because repayment isn’t an overnight thing. When you’re tracking your progress, try to do it when there’s a bit of extra cash on hand. That way, if you notice that one loan is almost paid in full, you can knock it out and move to the next one on your debt hitlist.
Don’t forget to celebrate the small wins! Grab your significant other or good friends and buy them a drink or a coffee. After all, knocking off some debt frees up cash for the fun stuff! This time, instead of paying for it with a credit card, pay cash and tell your guests why you’re all out together (and hey, don’t forget to mention your amazing advisor!).
STEP SIX: REEVALUATE REGULARLY
I say it a lot because it’s true: you’re going to fall off the wagon at some point. Maybe one month you’ll be suckered into a late-night infomercial about a stair stepper. Maybe the next you’ll want to go on a vacation that ends up being a bit pricier than usual. Either way, don’t look at these moments as failures. Instead, take it as an opportunity to reevaluate your strategy.
If you got off track, what caused that to happen? Was it really your own lack of will-power, or was something else at play? If your repayment strategy isn’t addressing something – like high-interest loans that leave you feeling hopeless – change tactics. Pay those first. Do something that will motivate you to keep moving forward.
No matter what happens during your loan repayment process, always pick yourself up and try again. Even small progress toward your goal of becoming debt-free is still progress. You’ll thank yourself for staying consistent when debt isn’t a factor in your financial life – and that moment could be much sooner than you think.
Ready to get started implementing your strategy? Download our FREE debt hitlist here.