Most people have struggled with debt at some point in their lives, including my wife and I.
Believe it or not, my wife graduated from college with over $80,000 of student loan debt!
She had no clue where to start in her journey to pay off her debt and I know she wasn’t alone.
In fact, a friend recently asked the same question.
Our friend is in debt and wants to get out of debt but has no clue where to start. Many people around the world are in the same exact situation so I wanted to share some easy ways to get started on your adventure of destroying your debt.
Just remember, it is likely your debt won’t disappear overnight. Paying off debt can be a long journey, but it’ll be more than worth it in the end.
Let’s get started with the first step.
Step One – Get Together A List Of Every Debt You Have
The first step to pay off your is to know every debt you owe. This can be a bit overwhelming, but it is a necessary first step.
I personally start by pulling my free credit report from AnnualCreditReport.com, the only place where you get 100% free credit reports as authorized by federal law.
You can pull your credit report from all three bureaus if you wish or you can simply pull one report from each bureau every 4 months if you want to monitor your credit for fraud. Either way, you’re entitled to one report from each bureau (Experian, Transunion and Equifax) per year.
This report will show you a list of all of the debts that you owe other than loans from friends and family. The balances owed may be a month off if your creditor hasn’t reported your most recent payment, but it will give you the big picture of who you owe money to.
Once you have this list of who you owe money to, it’s time to dig deeper to get the rest of the information you’ll need.
Step Two – Find Out Everything About The Debts You Owe
Now that you have a list of who you owe money to, it’s time to figure out everything else about your debt. Here’s a list of what you’ll need to know about every debt you owe:
- Exact amount you owe
- Payment amount
- Frequency of payment (monthly, quarterly, etc)
- How many payments left (if fixed term debt such as a mortgage, student loan or car loan)
- Interest rate and whether it is fixed or variable
- If variable, what the rate is based on (prime rate, LIBOR, etc)
- Due dates
- Grace period (if applicable)
Where do you get this information? To find out how much you owe, check your most recent statements.
For everything else, you’ll need to do a little bit of digging. For loans, check the loan documents you signed. If you can’t find the loan documents, try calling the creditor or log in to their website and check your account details.
For credit cards, check the terms you agreed to when you signed up for the card. You may also be able to find this information online after you log in to your account on the credit card’s website.
If you’re having trouble understanding the terms, call the number on the back of your credit card. A representative will be more than happy to help you.
Step Three – Assess Your Debt Situation
It’s time to look at the big picture now that you’ve figured out all the details on every debt you owe. It probably won’t be fun and it could be just plain ugly, but you have to do it to move forward.
First, add up the total amount of debt you owe. The number may be scary but we’re going to work on knocking it down, so don’t worry too much yet.
Next, take the amount of all of your monthly payments and add them up. This the minimum amount of money that you owe on your debt every month. Again, this can be overwhelming, but you’ll be able to knock this down as you pay off your debts one at a time.
Congrats! You’ve Started The Debt Pay Off Process!
The steps you’ve completed so far have gotten you well along the process of paying your debt off. Even though you may feel like you haven’t made any progress yet, that couldn’t be further from the truth.
You now know everyone you owe money to, how much money you owe in total and how much your total monthly payments are. You now know the basic information you’ll need to make intelligent decisions on how you’ll pay your debt off.
The next step in paying off your debt is setting yourself up for success in your debt pay off journey, which we’ll cover next week.
Do you have any questions or concerns about how to perform the steps in today’s article? If so, leave a comment or contact me directly and I’ll do my best to help!