today we're tackling one of the biggest Financial hurdles many of us face getting out of debt whether it's credit card debt personal line of credit car payments or any other Consumer Debt we've all been there imagine waking up one day completely debt free can you imagine the peace of mind and freedom that you will feel well today I'm going to share the exact steps that help me pay off $30,000 in student loans while earning just $40,000 a year right after graduation and that is where my debt Journey first began before we jump into the three
easy steps I used to get out of debt I first had to motivate myself to get myself through it that meant I had to have a why what was my reason or my why to pay off this debt as fast as possible for me I wanted peace of mind that was the most important thing for me I wanted to sleep well at night knowing that I didn't have any debt weighing down on me ning me at the start of every month to make a payment towards money that I owe the second why was that I
wanted to be a homeowner one day I wanted to be clear of my debt so that I could finally start saving towards a home and work towards a good credit score now if you're with me so far let me know in the comment section below why you are wanting to be debt free I know that everyone has a reason why they got into debt in the first place it could be student debt like me or it can be credit card debt car loans or personal lines of credit whatever the reason may be I'm assuming you're
here because you thought enough is enough and you are eager to take action to destroy this dead in today's video I will take you through how you can conquer your debt in three main steps and to really hit it home for you I will be going over a live example with a free template that you can download at the end to make your de free Journey easier so let's get started step one get organized get your ducks in a row the first and I believe the hardest step is to get organized this means facing the
reality of your current situation and understanding your debt and a lot of this comes from the fear of a worst case scenario it's like having a suspicious mole on your leg you know that you should get it checked out by the doctor but your brain immediately jumps to the worst case scenario and things of skin cancer however if you get ahead of the discomfort of going to the doctor you will know the answer and you can plan accordingly it could end up just being a normal mole in which case crisis averted it can can be
a benign non-cancerous mole that you simply need to get removed by the doctor or it can end up being skin cancer but because you caught it in the early stages it can be treated easily however what you don't want to do is leave it until the mole gets bigger and bigger until you are forced to go to the doctor because of the sheer pain at that point it may be too late and the worst fears may play out and I don't mean to sound Bleak but simply that in most cases if you nip it in
the bud early you can prevent the problem from getting worse so let's take that first step by scheduling time in your calendar it's going to be on interupted time where you can have your full Focus to understand the scope of your situation hype yourself up by incorporating something that you enjoy whether it's going to a coffee shop or having a glass of wine at home but this is a date with yourself to get intimate with your finances and then create a list of your debt with the following details type of debt the amount of each
debt interest rate minimum payment as well as the due date and to make this easier for you I have a template that you can fill out with these details so make sure that you stick around till the very end to get access to the template and to see a live example step two create a plan once you have your ducks in a row it's time to create a plan there are two main strategies that you can choose from the first is called the debt Avalanche method this means that you start paying off the debt with
the highest interest rate no matter how much debt you have this makes sense from a olical perspective of course as you save more interest this way however we are not trying to solve a math problem we are human and we sometimes aren't always so logical we need to approach this in a way that can encourage us to keep going and to help build momentum so I like the snowball method which means paying off debt from the smallest balance to the largest balance no matter the interest rate there are a couple of benefits to this method
you could achieve quick wins which will give you the dopamine hit to keep you motivated it will also help you gain momentum just like how a snowball rolls down a hill and gets bigger and bigger until there is nothing stopping you from being Deb free with the snowball method you will list all the debts that you summarized in step one and put them in the order of the smallest balance to the largest balance ensure that you're paying the minimum balance on all debt except your smallest balance which is a debt that you will be throwing
everything that you have at once the first debt is paid off you will then put everything towards your second smallest balance as you clear each debt the amount that you put towards each subsequent debt will get bigger as you no longer would need to make the minimum payments on the debts that you just paid off just to reiterate a few points first it's important to at least pay the minimum balances on your other debt to maintain your credit score but before aggressively tackling your debt make sure to have at least $11,000 in an emergency fund
in case anything comes off as life often does and the last point to remember is to be realistic and to understand that it may take a few years to achieve this goal of being debt free understand that you are in a temporary situation and that it's not going to last forever that day will come when you finally pay off your debt now let's move on to the final step step three take action with your plan in place is time to take action we do this by budgeting and tracking your spending to know how much money
you will be putting towards your debt you need to understand how much is coming in and how much is going out our goal is to calculate what your savings rate is which is income minus expenses I also have a free budgeting template that you can use and we'll be going over a live example in just a little bit but first you need to know what your net monthly income is net income means your take home pay after all deductions like taxes so if your gross salary is $4,000 month your net salary might be $3,500 a
month after deducting things like taxes and other deductions the other part of the equation is your expenses this could be rent payments groceries vehicle costs eating out shopping entertainment the list goes on and on I suggest doing this exercise for the most recent month that has just passed like April since we're in May so that you have a full month set of data if you put your income amount and subtract all your your expenses you will come out with a savings amount now let's take this one step further and look at your past month spending
with a critical eye which of these expenses are necessary versus wants if you take out your wants how much more could you save each month if for some reason you do not have a savings amount after this exercise it means that you need to take a really hard look at your finances you need to do a combination of earning more money by working more or really cutting down on your expenses to the Necessities once you calculate your savings this is the amount of money that you can allocate to your debt first is to apply all
of the minimum payments then allocate the rest to the first debt that you are going to be paying off I'm not going to sugarcoat anything and say that you can maintain your current lifestyle while trying to pay off debt you will have to go through a lifestyle change in the short term to really ramp up your savings and pay off that debt that means saying no to dinner plans and instead meal prepping at home no shopping for new clothes and certainly no Vacations or buying luxury items until this debt is first taken care of and
remember to stick to the plan and now that you understand the three steps towards conquering your debt destroying your debt let's jump into a live example so that you understand exactly what to do welcome to the tutorial portion of this video where we'll be going over a live example on how to go through each of the three steps steps so the first step is to get organized make sure that you have some uninterrupted time away from any distractions that you might have like your phone work emails family members and also try to kind of incorporate
it with something that you enjoy whether it is going to a coffee shop or finding a cozy place at home with a cup of tea once you have that on interrupted time make sure that you've gathered all your debt statements so you might have to look in a couple of different areas like your email notifications or or even paper mail that you may have received or maybe you might just be going into your online banking and downloading the statements there but once you have all your debt statements in one place we can now get them
organized in some sort of template like this that I have created for you guys so this you can actually download for free so make sure to check out the description box to get your free copy so with the debt statements in front of you you can now transfer all that information into this template so that you can get organized I listed a couple of ones that may be applicable to many people which are student loans credit card personal line of credit as well as car loans and in order to kind of FastTrack this a little
bit I went ahead and completed some of these cells already so as you can see here we're just going to zoom in a little bit I went ahead and completed the total amount of debt the interest rate the minimum payment as well as the payment due date now keep in mind the payment due date might be different for you know each of your debt I actually suggest aligning the payments on the same day just to kind of make it easier to track things usually you could do this by calling in asking or requesting to change
the date to let's say the first of the month sometimes you might need to make a catchup payment and then the next month you might be able to be aligned with the first of the month or whatever date that you choose in our example we will assume that all of the debt is paid on the same date just to make it a little bit easier so once you have all that information you can see in a snapshot where you are standing you can see that your total debt is equal to $52,000 and that the minimum
payment is $520 per month and that's it that's your first step just to get everything organized now we can move on to the second step which is to create a plan on how we can tackle this debt now we know that there are two main methods to pay out your debt the first is a debt Avalanche method which is targeting the debt balance with the highest interest rate and the second one is the snowball method which is tackling the debt with the smallest amount first and the biggest benefit to the snowball method is that it
helps you gain momentum and it keeps you motivated as you see each of these debt areas completely paid off so in this case we I went ahead and put them in order of priority based on the snowball method you could determine this by looking at the debt amount so you can see that the credit card is the smallest balance so I put that as priority number one the second biggest balance is the personal lineup credit which is 12,000 next is the car loan and then lastly is the student loan which is the biggest amount now
if you're going to do the out Avalanche method your main focus would be this column here which is the interest rate but as we are going forward with the snowall method that means that we would apply the minimum payment to all the other debt balances and then after applying the minimum balance to all the other debt we would basically put everything we have into the very first debt and prioritizing paying that off so you can see that I have went ahead and put the minimum payment for each debt such as the student loans personal line
of credit and the car loans except the first one which is going to be our main focus and we're going to try to pay it off as much as possible and in order to know what that amount is we would need to understand what our savings rate is which means that we have to move on to step three which is to take action and take action mainly means creating a budget understanding your income your expense amount and what your savings rate is and then actually paying off that amount every single month so let's move on
to step three and understand what our monthly savings rate is by budgeting so in the same template you can see that there is an area where you can budget your expenses in our particular case let's say that our aim is to stay under $33,000 of expenses every single month uh here I went ahead and I have allocated some amounts to each of the main categories of spending like housing household eating out personal care shopping Transportation subscriptions and miscellaneous don't feel pressure to spend a lot of time in trying to get each of the amounts right
just put a ballpark amount of what you think the right amount is and then we could always tweak it later once we find out what our actual spending habits are but this is just an exercise to roughly allocate our budget of $3,000 now that we have a budget in place the second part is to understand what our actual expenses are and in order to calculate that you would first need to reflect on the most recent month that has passed so so let's say that you know we're doing this at the beginning of the year and
you want to understand your actual spending habits of January 2024 in order to get that information all you would need to do is log into your online banking there should be a section in your online banking where you can download all your transactions from your credit card and your checking accounts and they would usually be in the following format there should be a date there should be a detail of the transaction and then the expense amount so I went ahead and I've already prepopulated some example transactions so you can see in this particular case that
there is a date for the month of January the type of transaction or detail of expense and then the expense amount and then there's also a section for notes I just like to go in and kind of review all the expenses to see what they are related to this is especially helpful when the detail of the transaction is more generic like Amazon in this case I put in a description like it was related to shampoo and body wash and so that just makes a little bit easier when we go ahead and try to categorize it
so I went ahead here and I've categorized everything it's just a matter of categorizing each item into the right buckets so you can see here that it's linked to the applicable transaction so rent is equal to this amount utilities and then if you just move further you can see I've added up a couple of items for groceries you can see that I've also added up a couple of items related to a restaurant so I went ahead and have done that and completed what the actual expenses are and you can see that the ACT actual total
expenses is $2,920 and that is under our budget which is great now in the case where you're over budget there is also a section where you can write down why you were over budget in that particular area but in our case it seems like we did pretty well another area to look to see where you're all over budget is this section here the difference so you can see in red that eating out was a little bit more than budget and personal care but it seems like every other bucket was under budget so it kind of
evens out and that just provides a little bit of flexibility when it comes to doing your budget on a monthly basis and in this particular case it seems like the budget is actually quite realistic and reasonable compared to your actual spending habits now that we understand our expenses there is actually a tab where there's a summary of all your expenses and your income and what your savings rate is so you can see that the expense is $2,920 let's say that your monthly income your net monthly income is $33,700 remember that net is different from from
gross pay let's say that your gross pay is $4,500 a month make sure that this is the net income so your take on pay after all the deductions like taxes this amount is pretty easy to find as it is going to be the amount on your bank statement or it will be the amount in your pay slip where they'll start with the gross pay and then they'll make all the deductions and then they'll come up with the final net amount where which is your take on pay so in this case your monthly income is $3,700
and now there is a savings rate of 21% or $779 that is the amount that we work with when trying to pay off all the different debt amount so if we believe this is a pretty realistic savings rate on a monthly basis what we can do is apply this amount as the standard for the rest of the year so take the $779 you have to subtract all the other minimum payments then you are left with $289 which you can pay towards your credit card on a monthly basis and you can see that the toal monthly
payments add up to $779 which equals to the savings rate of $779 there in this particular case it seems like it's going to take a while to pay off this $5,000 so there's a couple options to really try to accelerate this the first is to do an audit of your expenses really going through each item to see what areas are Necessities like rent this is hard to change versus wants which is more like eating out if you can potentially cut back back and really hone in on this spending habit you could potentially save you know
a few extra $100 that you can really put towards your debt repayments so do that audit of your expenses and try to tighten the belt when it comes to all the want expenses know keep in mind this is going to be a temporary lifestyle change that you are consciously making in order to really prioritize repaying your debt so after changing a couple of items here you might be able to bring your budget down to let's say $2,700 and saving an extra $300 per month means that you'll be doubling your current repayment of the credit card
which means that you will also be able to repay that amount in half the time and once that first amount is completely paid off this will be gone and you will be able to allocate the $779 whatever your savings rate is left to the remaining three debt and you'll do that until each of the debt Amounts is paid off and once you are in your last one then that is the only debt you need to focus on until you are completely debt free and to wrap everything up I want to give you some tips that
will help you stay motivated and keep the goal of being de free front of Mind as they say out of sight is out of mind make sure that you put visual reminders around the house whether it's a sticky note on your computer your phone background or a note on your fridge reminding yourself every day will help you subconsciously shape your behavior for example something that I like to do every day to maintain my health and my weight is to weigh myself in the morning if I notice I gained a little bit of weight I find
myself subconsciously reacting to that bit of information like saying no to pizza and instead choosing to have a salad instead another way to stay motivated is to revisit your why remember the reason why you are temporarily putting yourself through this imagine the peace of mind and freedom after you are de free and finally being able to save towards your home your wedding or that dream vacation without any guilt so let me know in the comment section down below what are you looking forward to the most when you are finally Deb free and remember that I
have a free template down in the description box so that it can help you conquer your debt and get your budget on track and if you're interested in how I track my income expenses and savings make sure to check out my video over here thank you so much for watching today and I'll see you guys in my next video bye
