MEMPHIS, Tenn. — From credit cards and auto financing to mortgages and student loans, debt can pile up quite quickly. Paying it off, as many know, doesn’t always happen as fast.
“I started getting credit card debt at about the age of 18,” Memphis resident Latisha Styles said.
By the time Styles graduated from college, she’d racked up more than $20,000 in credit card debt alone.
Fresh out of school with a finance degree, but in the midst of the recession, Styles found herself unemployed and unable to pay her bills.
“I just kind of let the credit cards fall by the wayside and unfortunately it hurt my credit score, it hurt my personal self-esteem,” she said.
Sound familiar? Styles has a story like so many, but the good news is, hers has a happy ending.
She paid off every dime of her debt in three years.
Styles said, “It made me feel triumphant that I actually set a goal and followed through, and not only that, it’s a huge weight lifted off my shoulders!”
Want to dump your debt? Here’s a three-step plan to be debt free in 24 months.
#1 – Prioritize your debt
WREG spoke with Bankrate.com Senior Financial Analyst Greg McBride.
He said, “If you want to focus on getting out of debt, start by listing all of you debts and then prioritizing them ideally from highest rate to lowest.”
McBride says once that first item is paid off, funnel the extra cash to the next debt.
Speaking of a list, Styles took it a step further by literally setting a date to be debt free.
She said, “Setting that date and then telling everyone that I had set that date really helped.”
#2 – Watch expenses
Experts say budgeting is key to getting out of debt.
McBride explained how it does two important things: “One, it’ll give you a good idea of where your money is going so you can find opportunities to cut back and save and funnel more money towards debt repayment, but it also forces you to live within your means.”
Styles went on what she calls a “cash-only diet”, which meant no credit card swiping at all.
“When I had credit, I was spending about $1.20 to $1.30 for every dollar I made and so it was really important for me to pull back and say, this is how much you have and this is how much you can spend,” Styles said.
Websites and apps like Mint.com, Good Budget and Ready for Zero can help track progress.
Most bank sites offer budgeting tools, too.
Experts say this must become a habit, even after you’re debt free.
#3 – Be ready to sacrifice
McBride said paying down debt often means making difficult choices.
“Sometimes this is going to mean doing things that are painful like taking a second job or drastically cutting expenses so that you can create the money to really accelerate that debt repayment,” he said.
Styles is fairly young, so she had a little help by bunking with family for a while. At the same time, though, she turned her hobby into cash.
She now runs a personal finance blog called Young Finances that’s’ aimed at millennials.
“If you think about it, every journey starts with a small step. So, it’s all about sitting down, thinking about how much debt do I have, when do I want to pay if off and making it realistic,” she said.
Styles says part of being realistic was setting a goal that was attainable. This meant not completely depriving herself of things she liked to do. So instead, she set aside $50 in her monthly budget for “fun money” when she was paying down her debt.
She now takes the same approach as she’s saving for the future. That “fun money” has become a savings stash for travel.
Styles used a credit counseling agency to help pay off her debt. They contacted her creditors, arranged fee concessions, and in most cases got her interest rates to zero percent.
If you still have good credit and are paying bills on time, you can negotiate for lower rates on your own. This of course frees up more cash to pay down that debt sooner.
Bankrate.com Debt Payoff Calculator
