When I was in high school, I had a habit of stressing myself out to the max. I’m talking Jessie Spano, smoke coming out of my pencil, keeping myself up at night to get the perfect grades level of stress. On a scale of 1-10, if one is calm and 10 is totally freaking out, I was generally at an 8.
There were many times during this period when I felt like I might crumble under the stress. The worst times were around midterms and finals – especially when I couldn’t remember an answer to one of the potential test questions. In an effort to calm me down and show me that I was more prepared than I realized, my parents would often tell me this:
“You’re overthinking it. You’re too close to the problem.”
This was usually followed by advice telling me to get a good night’s sleep, to which I would retort, “Who has time for sleep?”
Naturally, my parents were usually right. When I’d finally give in and just go to bed, I would wake up, review my notes, and realize I was in fact much more prepared than I thought. The pressure I put on myself blocked my instincts from kicking in, making me think I knew nothing at all. But once I made room for my instincts, I realized that the answers were there all along.
This exact same scenario happened in my debt payoff journey. On a scale of 1-10, my general worries about debt were at an 8. I couldn’t even buy a slice of pizza without thinking I could have saved that $2 for debt payoff. And, naturally, I realized years later that I’d been overthinking things the whole time. I was too close to the problem.
Once I was able to take a step back, understand what was making the payoff process take so long, and then create a more efficient plan, the payoff process went much more smoothly than it had before. It also happened a lot quicker.
Want to streamline your own debt payoff plan? If you fear you might be too close to the problem, then take a step back and take a look at this super simple payoff plan. Chances are, you may have been overthinking it the whole time.
Step One: Acknowledge Your Debt
The first step to a strong payoff plan is to acknowledge your debt. Now, if you’re anything like I was (thinking about my debt day and night), you might be thinking, “I have acknowledged my debt – I couldn’t not think about it if I wanted to!”
Unfortunately, fretting over something isn’t the same as acknowledging it. The things which plague us are not necessarily things we can see clearly.
Give yourself the proverbial good night’s sleep and take a step away from the problem. Try not to think about your debt for a few days. Then come back to it and look at it with fresh eyes. You might discover that it’s not as complicated as it originally seemed.
Debt may be a math problem (more money out than money in), but it’s also an emotional problem (it leads to unbelievable strain on our mental well-being). And any problem that carries emotional weight is a problem that becomes over-complicated.
Remove the complexity. Yes, debt feels terrible. Besides the fact that it’s frustrating and feels like a major financial setback, it also makes us feel like a failure. But you have to give yourself a break if you want to move on. Allow yourself to understand that all people who have debt (of which there are many) feel this way. It’s completely normal. But sinking into the emotion will make you sink into more debt.
Remove the emotional lens and remember that debt is a simple math problem. Debt means you have more money going out than money coming in. And that’s something that everyone has the power to change.
Debt is not a statement about your adulthood. It’s not a sign of your ability or inability to create a life for yourself. It’s not a representation of who you are in any way.
Debt is a simple math problem. And it’s a math problem that you can fix.
Step Two: Create Your Debt Payoff Plan
Once you’ve gone through the step of acknowledging your debt, the next thing is to create a plan to pay it off. Here’s how:
Target the account you want to pay off first. Some people prefer to pay off the highest interest account first and some people prefer to pay off the smallest balance first. Decide which method works best for you and then arrange your debt accounts in order.
If you want to target your highest interest rate account first, list your debt accounts from highest to lowest interest rate. That is the order in which you’re going to target your accounts until they’re all paid off. If you want to target your smallest balance account first, order your debt accounts from smallest to highest balance. That’s your debt payoff order.
Once you have your targets in order, see if you can pay more on your debt than the minimum payments. Now apply that amount to your target account. Here’s how it works: let’s say all of your minimum payments are $50 and you have an additional $50 per month to apply to your debt. In that case, you’ll pay $100 ($50 minimum + $50 extra) on your target account and $50 (minimum) on all the rest.
If you continue to pay the same monthly amount on your debt even after you pay off one or more accounts in full, then you can create some real momentum on your overall plan.
For example, let’s say your first target account is paid off. You were paying $100 on that account. Now you can add that $100 to the minimum payment on your new target account (equaling $150). Once that’s paid off, you have $150 to add to your new target account (equally $200). So that initial $50 extra you added to your monthly plan (that may not have sounded like much in the first place) has suddenly created incredible momentum!
This kind of momentum can take months or even years off your overall repayment time. That not only saves you a lot of heartache – it also saves you a lot of money.
And once your debt is paid off in full, you can apply that same monthly amount you were paying on debt to new financial goals, like saving for something you’ve been wanting all along. How’s that for financial momentum?
Step Three: Continue to Find More Ways to Create Momentum
When it comes to winning the game of debt, creating momentum and keeping it rolling forward is your best chance at success. If at any point you feel like you’re struggling to keep the momentum going, get help. The sooner you tackle what’s stalling your plan, the better.
And as you go, continue to look for new ways to create momentum! Let’s say you don’t have the initial extra money to pay on your target account – that’s okay. You can still use the plan above to pay your debt off faster, if you apply the target account’s minimum payment to the new target account once it’s paid off.
However, there may be ways to create that extra money you haven’t thought about. Perhaps you could cut the amount of times you eat out per month, drink one less coffee out per week, change your cable or cell phone plan, etc. Or, perhaps you can do something on the side to earn money from your skills or from selling things you own that you no longer use.
Remember: no amount extra is too small. Momentum is momentum. Once you get it rolling, you’ll be able to ride that wave and continue to find new things to help you increase the momentum. I discovered in my own payoff process that the progress gave me a bit of a high – the more I saw the numbers going down, the more motivated I was to keep going. So, while it may seem like it’ll get harder over time, positive momentum will actually make it easier over time.
And if you remember nothing else from this article, remember this: debt is something the majority of Americans go through. It is not in any way shape or form a reflection on you. And as long as you target your payoff and ride the momentum, you can pay it off and start working towards more fun financial goals. You got this, you just have to get started!