3 Things You Must Do Before Paying Off Debt
Yay! So you’ve decided to get rid of your debt. That’s great news!
Before you start throwing everything you’ve got towards debt, slow down for a bit and make sure you’re ready to embark on your debt payoff journey.
What do I mean?
Well, you wouldn’t go on any other journey without a plan (or roadmap), so you should be prepared for your journey to financial freedom too!
Here are the 3 things you must do before paying off debt:
1. Create a budget.
I hear your groans already.
Trust me – a solid budget will serve you well. This is the roadmap that I mentioned earlier. It will tell you where you are now, where you are headed, and how to get from point A to point B.
Your budget should be able to tell you how much money you’ll be able to send to debt payments each month. It should also be able to project your cash flow for upcoming months so that you can prepare for any special expenses like annual fees or quarterly dues.
My Budgeting Kit does exactly that. It’s the only budget you’ll ever need for your personal finances. Click here to learn more about it!
2. Build your emergency fund.
Do you know what sucks? Making progress towards getting rid of debt, and then getting hit with a surprise expense. Your check engine light comes on or your air-conditioning stops cooling in the middle of summer (THE WORST!).
You have to expect the unexpected, so that when these expenses pop up, they won’t derail you from your debt payoff journey.
Generally, an emergency fund should have enough money in it to cover 3 to 6 months’ worth of expenses. But when you’re working towards paying off debt, I suggest stashing away $1,000 for emergencies. Then, when you’re finished paying off debt, you can work towards a fully-funded emergency fund.
Let’s talk about that $1,000. Do all that you can to get to that $1,000 as quickly as possible. Sell some stuff around your house or drive for Uber (or a similar service). You want to build momentum and get this $1,000 so that you can move on to paying down your debt.
Keep this $1,000 in a high-yield savings account. Online savings accounts will usually get you a higher interest rate than your local bank. Check Bankrate.com for current rates.
Replenish your emergency fund when necessary to keep it at $1,000.
3. Have a plan to stay motivated.
Inevitably, you will experience setbacks along the way. Even with a strong budget and an emergency fund.
How will you stay motivated? This is so important to make sure you can get back on track when the going gets tough.
Print out a debt tracker and stick it on your fridge to remind yourself of how far you have come!
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You’re on your way to getting rid of debt! It won’t be easy, but it will be so worth it. I know you can do it!
