How to Get Out of Debt: The Ultimate Guide

Are you struggling with debt? Imagine if you could automate your debt so that was paid off automatically without any work from you. In this article you'll learn how to automate your way out of debt so you can stop worrying about it for good.

How to get out of debt.

I've been there. Thousands of dollars in debt, feeling trapped with no way out. But there is absolutely a way out! I graduated college buried in debt. Between outrageous student loans, car loans, and credit cards I left our college system in over $80,000 dollars of debt. All this while raising my two wonderful children and living off a tiny little salary. What a great way to start your adult life! I was stressed, but you know what? I escaped it and if I can do it, you can to. It's really not that hard!

In this article I'll not only show you how, but I'll also show you how to automate the process so you don't even have to worry about it! You can find lots of ways to escape debt online and I'll cover the most common technique, but what makes my approach different is that I automated it so that I escaped debt without even thinking about it. Every month my debt got lower and lower but I wasn't doing hardly anything on my part, it was all automated! If you're looking to get out from the under the burden of debt and want to learn how to automate that process keep reading, your in for a treat!

You're probably already aware of this, but debt is bad! So bad it can affect your health if you're constantly thinking about it and worrying about it. You can stop all of that and erase it from your mind. Wouldn't it be great to not even have to think about debt? It's 100% possible. So how did I do it?

I used one of the most common and popular strategies out there. Dave Ramsey popularized the strategy called the "Debt Snowball". The basic idea is to pay off your debt from smallest to largest debt. Pay the minimum payment to all debts but the smallest one. The goal is to eliminate them one by one by focusing on one at a time. Each time you pay off a debt you gain confidence and momentum to knock out the next one. This strategy works. This is the basis for what I used to escape debt but I took it the next level and created my own strategy I called the "The No Worry Debt Elimination Strategy."

 

The No Worry Debt Elimination Strategy

 

Step 1 - Stop Feeding the Debt

Stop using debt! This is probably the hardest step in the whole process. You have to stop increasing your debt, today! Some people can put away their credit cards and leave them and for others it's not so easy. They see a new gadget and they just have to have it. They pull out their credit card and continue the downward spiral into the debt hole. If you are one of those people don't feel bad. It's human nature and you can overcome it.

Cut up all of your credit cards now! Literally cut them up and throw them in the trash. If you have any other access to debt like a Line of Credit or paper checks for your credit cards cut them up and throw them away also. Just by stopping your access to debt you accomplished a huge step. Pat yourself on the back because you are officially on the road to being debt free!

 

Step 2 - Identify all debt

Just thinking about all the debt is probably stressing you out alone. The whole purpose of the No Stress Debt Elimination Strategy is to get rid of that stress. This is the first step to eliminating it. Now we are going to list out all of your debt. You may have to do some research and check on all your accounts and credit cards but it is necessary to know exactly what you owe to solve the problem. So get busy and list all of your debt. Here is what you need to know about each debt:

  • Lender

  • Interest Percentage

  • Amount Owed

  • Website

  • Login Credentials

Once you are finished listing all your debt you will already begin to feel satisfaction that you are taking the necessary steps to conquer you debt and eliminate that stress from your life for good!

 

Step 3 - Determine How Much You Can Pay Towards the Debt

Now you must decide exactly how much you are going to put aside each month to eliminate that debt. Take a look at your income and expenses to figure out what you can spend each month to get rid of that debt. What if you really don't know? Determine exactly how much money you bring in each month. Find out how much you pay for all your bills. Finally, how much are you saving? Here is a simple formula to tell you how much money you have left over:

Income - Bills  (Not including debt payments) - Savings = Remaining Money

Choose how much you want to set aside of that remaining money to put towards debt. Put as much as you can but don't squeeze yourself so much that you have nothing left. That will only demoralize you and ultimately make you more likely to fall out of the plan.

Now that you know exactly how much you can put towards debt, let's find the best way to apply the money to your debt and automate it!

 

Step 4 - Create Your Plan

Today we are going to create a plan to get out of debt. This is where the list you created earlier comes in handy.

Pull up that list and take a look at all of your debts. Now we are going to create a new list from those debts.

Start by listing the debt with the lowest balance. Now list the next debt with the next lowest balance. Continue doing this for all of your debts until you have all of your debts sorted from lowest to highest balance.

The first one which is the one with the lowest balance will be debt you focus on from now on until it is paid off. I call it the Focus Debt.

In the previous step you determined how much money you can put towards the debt. Now let's make a plan on how to use that money to pay off your debt in the best way possible.

Using this simple formula we'll find out how that money should be paid back by subtracting the minimum payments of each debt other than your focus debt from your debt repayment money:

Debt Repayment Money - Debt 2 Minimum Payment - Debt 3 Minimum Payment - (Continue for each debt) = Focus Debt Payment

Here is an example:

$1,000 (Debt Repayment Money) - $120 (Debt 2 Minimum Payment) - $160 (Debt 3 Minimum Payment) = $720 Towards Focus Debt

Now list out your debt plan like the following example:

  • Focus Debt - $720 Monthly Payment
  • Debt 2 - $120 Monthly Payment
  • Debt 3 - $160 Monthly Payment

At this point your stress will be melting away even more! Now not only do you know exactly how much debt you have and where it all is. You have a plan to eliminate it!

Once you are finished creating your plan you will already begin to feel satisfaction that you are taking the necessary steps to conquer you debt and eliminate that stress from your life for good!

 

Step 5 - Automate Your Plan

So at this point, you know how much you owe and all the details. You have a plan and know how much you need to pay each lender. You know exactly when it will be paid off.

Now it's time to put the rubber to the road and take action. Instead of you having to think about it and write those checks every month we're going to automate it. By automating you eliminate all that wasted time writing the checks or logging into websites to pay. You also eliminate all the stress from constantly thinking about your debt. Once it is automated you will simply be able to review it occasionally and make sure you are on track and your done!

So how do you automate it? There are lots of options, but I've found the best way is to use your very own bank or credit union's bill pay system. 

When do you get paid? If you get paid once a month, that is easy enough. Setup a reoccurring payment to each lender for the monthly amount you determined in step 4 the day after you get paid.

Now, if you get paid biweekly or even 4 times a month, you're going to have to most likely split the payments out over the paychecks. Here is an example of paying over multiple paychecks in a month:


March 4th - Paycheck 1 - $800

  • Reoccurring Payment to Credit Card 1 - $300 - You're Focus Debt

March 11th - Paycheck 2 - $800

  • Reoccurring Payment to Credit Card 2 - $40- Minimum Payment
  • Reoccurring Payment to Credit Card 3 - $55- Minimum Payment

March 18th - Paycheck 3 $800

  • Reoccurring Payment to Small Loan - $125 - Minimum Payment

March 25th - Paycheck 4 $800

  • Reoccurring Payment to Car Loan - $220 - Minimum Payment

It's that simple! Once you have created the reoccurring payments. You're debt will be paid down each month on it's own with no action from you!

 

Step 6 - Creating the Habits

Now that you have an automated system to pay down the debt you can now let the system do the work for you and you simply manage it. To do this it's best to create some habits to ensure the system continues to run smoothly.

It's almost like maintenance on your car. The car is a complex system that runs on it's own but you have to do some maintenance to ensure it stays that way by changing the oil, rotating the tires, and doing routine checkups.

Here are some habits to ensure the systems continue to run smoothly. You'll need to make sure you add them to your calendar or phone so you can get a reminder that you need to do it.

Habit 1 - Stop Paying with Debt - Always

First things first, stop adding to your debt. No more using your credit. Chop them up, freeze them, whatever you have to as long as you stop the downward spiral. If you master this habit of paying only with money you have, the debt cycle will end for good.

Habit 2 - Monitor Payments - Weekly

Each week you should login to your bank account and verify that the payments were made on time and are properly being credited to your debt. This is simply to ensure your new system is running smoothly. Every once in a while a hiccup could occur and you'll need to resolve an issue such as a payment not going for whatever reason, but as long as your on top of it and resolve it, everything will be fine and the system will continue chugging along successfully. This should only take you about 10 minutes per week at most.

Habit 3 - Adjust Your Payment Plan - Monthly

The last habit is to simply review your debt elimination plan monthly and make adjustments if necessary. Soon you will have paid off one debt and then you can modify the plan to choose a new debt to focus on by adjusting your automated payments. You'll continue to do this monthly until all the debt is gone. This should only take you about 10 minutes to 1 hour per month depending on if any changes needed to be made.

Congratulations, you made it! If you've followed the steps, you now have an automated debt elimination strategy. You're on your way to debt freedom, you have peace of mind, and you can focus on what's important to you! You've made a huge step forward in your financial well being!


David Shepherd is the creator of Let's Automate Your Life. Teaching millennials how to automate their money and free themselves to do what they love!

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