Easy Steps To Get Out Of Debt, According To A Certified Financial Planner

Summary

Lauren Lyons Cole, a certified financial planner and senior editor at Business Insider, shares practical advice on tackling debt. She emphasizes the importance of organizing debts, prioritizing repayment, and being realistic about the time it will take to pay off. Cole suggests strategies like making minimum payments on time, paying more than the minimum when possible, and focusing on high-interest debt first. She encourages viewers to adjust their spending habits temporarily and stay committed to the plan, with the goal of eventually becoming debt-free. The process may be gradual but is achievable with persistence and discipline.

Takeaways

• 😀 Organize your debts by listing each one with the amount owed, interest rate, minimum payment, and due date to better visualize and prioritize them.
• 😀 Be realistic when creating a debt repayment plan—paying off debt can take years, and it's important to set achievable goals.
• 😀 Debt repayment is temporary, so lifestyle changes to reduce spending are essential but won’t last forever.
• 😀 The key to maintaining good credit is making all minimum payments on time, so setting up automatic payments can help ensure you don’t miss any.
• 😀 To make progress in paying off debt, aim to pay more than the minimum payment, even if it's just an extra $20 or $50 each month.
• 😀 Focus on paying off the highest-interest debt first, or consider paying off the smallest debt first for a quick psychological win.
• 😀 The most effective strategy is one that builds momentum, so find the repayment method that works best for you.
• 😀 Expect a lifestyle change when paying off debt—cutting back on spending is necessary to free up money for your debt payments.
• 😀 If you receive extra money, like a tax refund or a gift, use it to make a larger payment toward your debt to accelerate the process.
• 😀 Paying down debt is achievable for everyone as long as you stick to your plan and remain committed to the process.
• 😀 Debt repayment is a long-term goal that requires patience and discipline, but it is possible with a consistent and realistic approach.

Q & A

What is the first step in tackling debt, according to the script?

The first step is to get organized. This involves creating a list of all your debts, including the amount owed, the interest rate, the minimum payment, and the due date for each debt.

Why do people often avoid getting organized when it comes to paying off debt?

Many people are afraid to tackle organizing their debt because it can seem overwhelming. Facing a pile of debt can feel daunting, and the task of organizing it may seem like a huge burden.

How can you prioritize which debts to pay off first?

By making a list of all your debts, you can see the full picture of what you owe. This allows you to prioritize paying off certain debts, such as those with the highest interest rates or the smallest balances, depending on your strategy.

What is an important thing to keep in mind when creating a debt repayment plan?

It is crucial to be realistic when creating a repayment plan. Debt repayment can take several years, and you don't want to set yourself up to fail by expecting it to be resolved quickly.

How long does it typically take to pay off debt?

Paying off debt can take a long time, often two to three years or even longer. It's important to understand that it's a long-term goal and not something that can be resolved overnight.

What is the significance of making minimum payments on time?

Making minimum payments on time is critical for maintaining a good credit score. Setting up automatic payments can help ensure that these payments are made consistently and on time.

What is one effective strategy for paying off debt faster?

One effective strategy is to pay more than the minimum payment. A good rule of thumb is to pay double the minimum payment if possible, or even just an extra 20 to 50 dollars, to help reduce the debt faster.

What is the rationale behind paying off the debt with the highest interest rate first?

Paying off the debt with the highest interest rate first helps to reduce the amount of interest you accrue over time, making it more cost-effective in the long run.

What should someone do if they receive extra money, like a tax refund or gift, while paying off debt?

If extra money, such as a tax refund or gift, comes in, it can be used to fast-track the debt repayment process. This helps reduce the overall debt more quickly.

Is paying off debt a permanent lifestyle change?

No, paying off debt is not a permanent lifestyle change. The adjustments you make to your spending are temporary, and once the debt is paid off, you can return to normal spending habits.