#108: How to Build a “Get Out of Debt” Budget Plan
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I get it, your fun idea of a weekend probably doesn’t include building a “get out of debt” budget plan. It’s not my idea of fun either, but it doesn’t make a budget any less important.
While a “get out of debt” budget plan may not sound like fun, it doesn’t need to be complicated. And building one that works for you could lead to financial freedom.
And let’s be honest: financial freedom can lead to endless fun. Imagine what you could do if you had the freedom to choose exactly how you spent your time every day. THAT’S my idea of fun.
If you dream of breaking free from your debt shackles once and for all, you’re going to need a budget that works for you.
In this article, I’ll tell you everything you need to know to build your “get out of debt” budget plan, so that you can build your personal path to financial freedom.
Why a “Get Out of Debt” Budget Plan?
If you’re feeling weighed down by debt, you’re not alone.
It can feel scary to look at your total debt, and it might feel impossible to break free. The rat race can feel endless and overwhelming.
But here’s the good news: breaking free is possible! With a smart “get out of debt” budget plan, you can ditch the burden, reclaim financial control, and unlock a brighter future.
This isn’t just about crunching numbers; it’s about empowerment. Imagine the freedom of saying goodbye to minimum payments and sky-high interest rates.
Picture the security of knowing you’re building a solid financial foundation. Get ready to celebrate those milestones and feel the excitement of achieving your goals!
Your Personal “Get Out of Debt” Budget Plan: 7 Simple Steps
So, how do you get started? Let’s build a plan that works for you:
1. Know Your Enemy
First, understand your debts. List them all, including:
- Consumer debt: Credit cards, personal loans, etc. (these usually carry the highest interest rates)
- Student debt: Interest rates are typically lower than consumer debt, but they can be a significant burden and are difficult (if not impossible) to discharge.
- Assets or liabilities debt: Mortgages, car loans, etc. (usually lower interest rates but larger balances).
2. Choose Your Weapon
There are two main debt-busting strategies, so choose the one that works best for you:
- Debt snowball: Pay off the smallest debts first, regardless of interest rate, for quick wins and motivation.
- Debt avalanche: Tackle the highest interest rate debts first to save money in the long run.
Personally, I favor a mix between the debt snowball and debt avalanche. For instance, when I was paying off my student loans, I paid the lowest balance loans first (which were less than $1,000 each), but once I paid these off, I focused my efforts on the highest-interest loan.
The debt avalanche can be a great tactic if you’re just starting and have a collection of low-balance loans. It’s a great way to gain some traction and motivation. However, I recommend switching to the debt snowball once you’ve gained decent traction.
3. Prioritize the High-Cost Culprits
Consumer debt is usually the biggest wealth destroyer. In particular, credit card interest rates can be brutal, eating away at your wealth.
The Power of Interest
Interest can be a friend or a foe. As a foe, interest is the silent thief that steals your hard-earned money.
For example, did you know that a credit card with a 20% interest rate can double your debt in just 4 years? Yikes!
Conversely, the S&P 500 has historically averaged a 10% annual return. Imagine the power of investing that money instead of paying high interest!
Prioritize paying off consumer debts first, even if it means putting other debts on hold temporarily. Think of it as plugging the biggest leaks in your financial bucket first.
4. Track Income and Expenses: Your Personal “Get Out of Debt” Budget Plan
This is your personal roadmap to success.
Track your income and expenses meticulously. Use tools, apps, or even a good old-fashioned spreadsheet. Make sure you know exactly where each dollar you’re spending and earning is going.
5. Consider Incorporating the 50/30/20 Rule
Allocate your income wisely. Here’s a rule that you may consider incorporating:
- 50%: Needs (housing, food, utilities).
- 30%: Fun Spending (entertainment, dining out).
- 20%: Savings and debt repayment (your financial warrior fund!).
6. Remember, It’s a Marathon, Not a Sprint
Set realistic goals and celebrate small victories. There will be ups and downs, but stay focused. Remember, you are building a brighter future, one step at a time!
7. Debt Paid? Time to Invest!
Once you’ve conquered your high-interest debt, consider shifting some focus to investments.
Historically, the stock market (like the S&P 500) has offered average annual returns higher than most mortgage interest rates. This means your money could potentially grow faster than the debt you’re paying off.
A Successful “Get Out of Debt” Budget Plan is All About Balance
Building a “Get Out of Debt” Budget Plan isn’t just about aggressive repayment; it’s about strategic planning. While tackling high-interest debt is crucial, don’t neglect to build toward your future.
When you build wealth while chipping away at debt, you create a powerful financial cocktail for success.
Conclusion
If you’re committed to reshaping your story and living life on your terms your “get out of debt” budget plan will help you get there.
You’ve got this! This journey might have its challenges, but with the right plan, unwavering determination, and a celebratory spirit for every milestone, you’ll be amazed at what you can achieve.
Do your research, seek professional advice if needed, and make informed decisions about how you’ll manage your debt.
With your personalized plan and a positive attitude, you can break free from debt and unlock your financial freedom. So, take a deep breath, grab your budget, and get ready to build a brighter future! You deserve it!
I’m here to support you on your journey, so send me a message or comment below if you have questions.
Now that you’ve learned how to build your “get out of debt” budget plan, you might be wondering how else you can FIRE Your Career. Check out the posts page for more ways you can FIRE Your Career and achieve financial freedom.
FIRE Your Career: Achieve Financial Freedom Through Your Career & Spend MORE Time Doing What You Love.
Resources I Frequently Recommend:
ClickUp (my recommended goal-tracking and project-management tool)
Strengths Finder (book to help you uncover your innate strengths, includes a free personality quiz)
The Bogleheads’ Guide to Investing (a great intro to investing book)
Others: 16 Books I Recommend to FIRE Your Career
Looking for More Ideas?
Here are some of my favorite go-to’s for additional ideas:
Ramit Sethi: I Will Teach You to be Rich
