No one likes that feeling of being indebted to someone else — especially when it comes to money.
When you’re in debt, it can feel like you’ll never achieve the financial future you want. While some debt (like a mortgage on a home or rental) isn’t actually a bad thing, the wrong kind can put financial freedom farther and farther out of reach.
Being completely debt-free isn’t always realistic or the best approach, but there are some smaller steps you can take to better manage your debt and start pursuing your financial goals.
Here are 3 steps to gain control and move closer to financial independence.
1. Know Who You Owe
It may be tedious and a little tricky, but the first step in taking account of your accounts is getting organized. Make a chart, use an excel sheet, or write down all your outstanding debts so everything is in one place.
Check out some of the helpful online tools that make organizing your data in one complete view a lot simpler. This is a great step to understanding your cash flow.
What should you include? Start with the outstanding balance, interest rate, monthly payments, and how much longer you need to pay (term). With all this information organized and accessible, you can start to develop a path forward.
But don’t forget to make sure you have an emergency fund or plan — typically 2-3 months’ worth of essential expenses — just so you’re always prepared for any unforeseen expenses that life can throw your way.
2. Know Your Why & Stick To It
A great question to ask yourself is how did I get here in the first place?
Most of the time, the answer is simple: we didn't know any better. And that’s ok because you know now.
Unfortunately, we weren’t taught about personal finance in school and a lot of parents are hesitant to discuss the topic because they don’t really know the right answers either. But again, all that matters is that you are ready to take control of your debt now.
Our best advice here is don’t play the blame game. It's time for you to get yourself out of this situation and putting the fault on others won’t help you identify the behaviors that continue to hold you back. Take an honest look at what you’re spending each month and determine what expenses you can cut back or eliminate moving forward.
Another helpful trick: Take notice and remember how this all makes you feel, and you’ll never want to go back.
3. Make An Insightful Plan
Here at K Wealth Advisors, we always start with a plan because you need to know where you are today in order to start moving in the right direction.
There are several approaches to mastering your debt, but we recommend one of the two following methods as they are the most impactful.
Focusing on the most expensive debt or highest rate first.
Starting with the smaller balances and adding the monthly savings to the next largest balance, or the snowball approach.
If need be, contact the credit card companies and try to negotiate the balance or a payment plan. Hey, it never hurts to ask. But regardless of their response, here are some simple, yet important credit card habits to get into…
Pay attention to your card’s bill each month to see what you’re spending and identify any possible errors.
Review those pesky recurring monthly charges and evaluate their value.
BONUS -Take a 3-6-month break from those monthly charges. *Taking a break from 2 or 3 recurring monthly charges can add up. Use the extra monthly cash to build your emergency or gain control of your debt.
Some alternative methods to build up additional cash in the short term may involve a little willpower. Try toning down on the vacations for a year. Maybe find somewhere local or less expensive to explore. And if your attic or garage is full of stuff you don’t use anymore, maybe it’s time for a good purge to see what you can sell or donate.
Could you use your personal or professional skills to help someone else? There could be a potential opportunity for you to devote some free time to a minor side gig to bring in another small source of income. Or maybe it’s time to ask for that raise at work.
K Wealth Advisors
Digging yourself out of debt can be a major undertaking. If you’re feeling overwhelmed, consider sharing your plans with a friend or family member and ask them to hold you accountable. If you’re looking for a more insightful plan guided by professionals, working with a fee-only CERTIFIED FINANCIAL PLANNERS ™ is a great way to gain control of your debt and your finances at the same time. Schedule a Good Fit meeting with K Wealth Advisors today to discuss your goals. #KWA