If you have debt and are not already on a serious plan to pay it off, get started by paying a small debt first.
Debt can be crippling, if it overwhelms you and eats up your income with payments owed and high interest. It can be limiting, stopping you from doing what you want to do. It can be hugely stressful.
One of the best changes you can make is learning to spend less than you earn, which seems like such a basic concept except, so few people actually do it. Paying off debt (something that can take up too many years) and staying debt-free can make you so much freer, so much less worried about finances.
However, it can be overwhelming to tackle a large amount of debt — some people personally avoid it because of this feeling of dread. So, let’s tackle the debt in baby steps.
How to pay off small debt?
On Day 1, simply start a list of all your debts. Do not worry about the amounts — just things you owe money on. Do not worry about getting the list complete — just start. You might list your credit cards, auto loan(s), student loan(s), mortgage, medical debts, friends and family you owe, etc.
On Day 2, if you have not yet finished, finish the list. Start to look up the amounts and add them to the list.
On Day 3, finish looking up and writing down the amounts of the debt. If you cannot find an amount, make a guess. Now put the list in order, from smallest to largest.
On Day 4, pick the smallest debt. This is your first target. You will pay this debt first before worrying about the others. Pay the minimum you can pay on all other debts, including zero if you can avoid penalties. If you pay all your bills and the minimum on everything else, what is the max you can pay on this first, small debt? Write down a number for now.
On Day 5, take a look at cutting back. If you do not have any extra, take a look at your discretionary spending. Can you commit to spending less on eating out, going to the movies, shopping, buying clothes and gadgets, at least for now? Can you cancel one of your cell phone plans or drop to a lower plan for cell or Internet usage? Can you cancel subscriptions to cable TV, Netflix, magazines, online services you might be paying for? Alternatively, is there a way to earn additional money outside your job? Could you clean houses, mow lawns, pet sit, or perform some other valuable service? Find the extra cash, and commit to temporarily cutting back or eliminating while you are paying off debt.
On Day 6, make a payment to the target debt. If you normally pay USD$25, and you are committing to an extra USD$50 or USD$100 (or whatever), pay the extra amount today — online if possible, or in person if needed. Many banks have electronic bill pay services you can use, if the debt you are paying does not have a way to accept online payments. See if you can set up a recurring payment in the larger amount for your target debt, until the debt is paid off.
Rest on Day 7, celebrate, but not by buying something though!
Often a smaller debt can be paid off immediately (if you have cut back on stuff) or in a few months. However long it takes, once you are done, take the entire amount you were paying on that target debt, and apply it to the next largest debt on your list. Once the smallest debt is paid off, you will start tackling bigger debts, and so on.
Also, do not take on new debt, if you can avoid it! Cut back on your spending, so that you begin to live within your means.
