How to Start Your Debt-Free Journey

So you’re ready to start your debt-free journey??

That’s amazing!

Paying down debt faster than necessary is not “normal.” So congratulations for taking control of your finances.

Starting your debt-free journey can be intimidating, but this post will walk you through the steps. Before you know it, you’ll be a year in and have paid off thousands of dollars.

Let’s get started.

Add up all of your debt

Coming to terms with where you stand financially is an area that many people avoid.

It’s almost as if they believe not looking at it, means the problems don’t exist.

If that’s you, it’s time to start giving your money some attention…including your debt.

The first step to getting out of debt is to determine how much you even have.

Block out half an hour or so, make some coffee or tea, and log in to all of your accounts. Be sure you’re not forgetting any and also save your login information so you can start visiting these accounts regularly.

For each debt, write down:

The lender
The total balance owed (you should also write each separate loan amount if you have multiple loans within one account)
The interest rate
The minimum payment

Keep this information organized.

I love writing things down on paper, but I also keep an online spreadsheet with all of the same information (refer to my monthly debt updates). I use Google sheets which I can access on my computers and on my phone.

Track your spending for at least the last 3 months

To get an understanding of where your money is going, go through all of your bank statements for the last 3 months at least.

I highly suggest that you do this manually rather than relying on the spending trackers provided by many banks. Those are often inaccurate because they don’t always properly designate the money spent to the correct area.

Organize your spending by area: housing, utilities, food out, groceries, the minimum payments for all debts, clothes, etc.

If you’re not sure of what you purchased at a store, then just write down the store name and how much you spent.

For example, you may have gone to Target and spent $150 but don’t remember what you bought.

Create a realistic budget

Now that you have your spending recorded for the last few months, you can create a realistic budget.

Based on your spending habits you should be able to determine how much money you need to designate to each area. Of course, it’s wise to reduce spending in some areas that you may be overspending, but that is up to you.

Be realistic about how much you NEED to spend. Feel free to add in “fun” or “shopping,” but also remember that the less you spend the more you can save and/or pay off debt.

I prefer to create monthly budgets, but you may prefer a weekly or biweekly budget.

I have a detailed video on creating a budget below where you can also find free budget templates.

Negotiate your bills/lower expenses and adjust budget as necessary

With your budget in place, you may see some areas that you could reduce spending or try to save money.

First, call ALL of your bill companies to see if they have any offers or call other companies to find better deals.

You may be able to reduce the cost of your:

cable (or cancel it)
internet
utilities
cellphone plan
insurance (car, health, dental, vision, renters, home)
Etc.

Also, if you have any credit card debt call to ask if they can lower your interest rate. When I called mine, all but one of my cards got a lower interest rate.

Second, reduce unnecessary expenses such as multiple streaming services, subscriptions, memberships you don’t use, manicures, etc.

These things can be annoying and/or difficult to do but you’ll be surprised how much you can save.

If anything changes, makes those adjustments in your budget.

Determine how much money you have leftover after expenses

Once your budget is in place, you can calculate how much money you should have leftover each month.

Subtract your expenses from your income, that will give you your answer.

If you don’t have enough money left over at the end of the month, this needs to change. Watch my two videos for How to Stop Living Paycheck to Paycheck or my blog post on the same topic to start to fix this.

Otherwise, whether you have $5 leftover or $600, you can start this journey.

Throughout this journey you’ll want to work on widening that gap of income – expenses. Naturally, this will occur as you pay off more debt, but you can also do it intentionally.

Again, please refer to my post How to Stop Living Paycheck to Paycheck as it goes into great detail on how you can make money fast and reduce your spending.

Build up your emergency fund first

With the excess money each month, build up your emergency fund first.

The size of your emergency fund is up to you. Dave Ramsey says $1,000 but I don’t think that is enough. Especially if you have kids, own a home, or have an older car.

Personally, when I started my debt-free journey I saved up $1,000, and THEN starting putting extra to my debt. However, I kept adding money to my emergency fund each month.

Now, I am working on getting my emergency fund up to 3 months of living expenses, but still paying off debt.

Choose a debt pay off plan

There are two common debt payoff plans:

The debt snowball

Order your debts from the smallest to largest balances. You will pay the minimum payment for ALL loans except the smallest. You will direct any extra payments to that smallest debt (on top of it’s minimum payment) until it is paid off. Then you move to the next smallest debt.

This method is best if you’re someone who prefers/needs to see some quicker “wins,” as in paying off entire loans/balances.

The debt avalanche

Order your debts from highest interest rates to lowest. You will pay the minimum payment for all loans expect the one with the highest interest rate. You will pay the minimum payment plus any extra money to the loan with the highest interest rate until it is paid off. Then you move to the next loan with the highest interest rate.

This method will cost you less money in the long run. You will save money on interest.

I 100% prefer the Debt Avalanche method because you could potentially save thousands of dollars in interest. I also am not the person who needs to see “wins,” because even though it may take longer to pay off a whole loan, my total debt is still decreasing and I know I’m saving money.

However, you’ve got to do what works best for you. Either way, you’ll be doing something so good for your life!

Stick to the plan and start paying off debt

Now you can begin to stick to that budget and directing your extra cash to one of your loans.

Depending on which plan you choose, you’ll probably pay off a whole loan or reduce your monthly interest significantly within the first couple of months.

Continue to decrease spending and/or increase income

Throughout your debt-free journey, you’ll start to realize that you can’t cut much else from your budget.

You may be able to by committing to a No Spend Year or moving to a cheaper home, but increasing your income is the next best option.

Obviously it’s not absolutely necessary for you to increase your income, it just helps you to pay off your debt quicker.

You could start a side hustle, offer services, get a second job, work a side gig like Uber or Door Dash a couple nights a week, sell more things around your home, pickup free items to sell online, take surveys, etc.

There are lots of little things you can do to make some extra cash. Every little bit helps.

Track your money monthly

From here on out you should be tracking your budget, spending, and debt at least once a month.

This will allow you to keep your budget in check and also ensure you’ll reach your debt-free goal date.

Once you start getting into all of this, you’ll realize it’s not so bad. It’s actually quite fun.

You now have control of your money, you’re taking responsibility for your past financial choices, and you’re getting closer and closer to financial freedom.

A debt-free journey is no walk in the park.

It’s more like a roller coaster of ups and downs. You’ll want to give up and feel like you’re not making progress. However, you’ll also experience major wins that are exciting and motivating.

It’s a journey worth going on. Can you imagine a life where you don’t have to make any payments?