A Short Guide to Paying Off Debt in Baby Steps

Image by Oli Young

When you first get started paying off debt it is by no means easy. It's a series of baby steps and little wins.

I've been working on a debt reduction plan for several months now. This is not the first time I've had to pay off a chunk of debt, but I plan on making this the last time. Getting started paying off debt is intimidating in the beginning, but very worthwhile in the long term. 

Discover the Problem

The first thing to do when paying down your debt is to go through your finances and figure out how much money you owe and to whom. Make a list of your debts from smallest to largest. It also helps to check out your interest rates and see if you can do some 0% balance transfers or call and see if you can get your rate lowered. Once you understand what you are up against, you can make a plan to eliminate your debt. 

Make a Plan

Figure out how much all of your minimum payments on your debt are. Next, make a realistic budget for your life including your living expenses, putting money in savings and so on. When making the budget, try and give yourself a little extra breathing room for those times when your bills are higher than predicated. Now work out how much extra money you have to pay off your debt. Even if you can only squeeze a few extra dollars out of your budget it will make a difference.

Put Your Plan in Action

Start by paying all of your minimums on time and then put the extra money you have to spare on the smallest of your debts in addition to the minimum payment. Any time you get a windfall or any other extra money, put as much as possible onto that one debt. When you've paid it off, roll your minimum payment over onto the next biggest debt. This is the Snowball method and is very effective because you start out with those little wins that give you a psychological boost. All of the little snowflakes add up to a big thundering ball of progress.

Keep Yourself Debt Free

The last baby step is to keep yourself out of debt. Don't buy things you can't afford. Protect your progress by cutting up your credit cards, keeping the card with the best rate for emergencies. Be sure to build an emergency fund so that if something does happen, you don't have to rely on your credit cards any more. Plan large purchases in advance and save for them rather them buying them on credit and paying interest while you pay them off. 

Take one tiny step at a time towards debt elimination and before you know it, you'll be sprinting.