Alright mama, you’ve got debt. So now what? I hope you’re as ready to make some progress on it as I am! I know I’m a nerd, and you don’t have to geek out about this to my level, but be real – it’s pretty dang exciting to imagine a life where your paycheck isn’t spent before you even got the deposit. 

Remember though, we talked about dreaming bigger. This journey is not just about getting debt free for bragging rights or something. It’s about believing that those Big Scary Goals, that you’ve never told anyone because they’d look at you like you’d lost your marbles, really are attainable! 

By now, I’ve walked you through pulling your credit and the whole information gathering process so that you could really see the true picture of where you’re starting from. Then, we talked about how important it is to establish your starter rainy day fund so that no bump in the road is going to derail you. 

You’re One Impressive Mama

Now I want to take a brief sec here and celebrate with you- You’ve accomplished two major steps!! You are completely aware of your full credit picture, what you owe to whom, AND you’ve been completely honest with yourself about that versus where you want to be.

Plus, you freakin’ just saved up a bunch of cash! 

Two steps down, way to go! 

You’re one awesome mama!

You deserve a little treat! I hope you celebrate with a glass of wine, and a (cheap) gift to yourself! A few options that come to my mind would be a 30 minute massage, a manicure, or a nice meal out.

Each of these can be found for about $30 or less in my area, so pick one – not all of them – and live it up! Spending $30 never felt so good, right?!?!

Moving On

Alright, back to reality. In this step, I will walk you through creating your debt pay off strategy. This is Step 3a. I’ve created a “sister” post where I walk you through creating and implementing a budget (Noooooo!! Yes, keep going.). Make sure you do this process in order by working through this one and then moving on to the budget in Step 3b.

When you’re done reading and implementing both of these Step 3 posts, you’ll have a list of debts according to your custom situation and a plan to begin knocking them out one- by-one. 

The list that you initially compiled in Step 1 may need to be tweaked slightly if you called and negotiated with your creditors. You get another pat on the back if you did that bonus step!

No Cheaters Allowed

Now, if you didn’t pull your credit, you didn’t finish compiling the information, or you do not have a complete baby emergency fund between $500 – $2,000, depending on your comfort number, you’d better not have been celebrating back there because you MUST do those steps before moving forward. This post will still be here when you come back with those things accomplished, so go back and do both of those things first. 

My debt free journey took me 5 years to complete, so trust me – there are will be emergency fund-worthy surprises along the way (where you’ll responsibly use your savings to avoid depending on credit), plus you’ve GOT to know your true starting point and the real numbers, which is why I had you pull your credit first. 

You don’t need things you can control, like creditors, to pop up during your journey because you forgot they existed. Your credit report may come with a few surprises and if so, we want to know about them now. 

It’s GO Time!

Okay, I’m done laying down the law on those subjects, ready for some action? 

At this point, flip to a clean sheet of paper and prepare to transfer each debt onto a new list, based on the order YOU choose. That’s right, you’re in charge here!

Let’s talk about the differences between the two most popular strategies for getting debt free. Although I prefer a combination of the two, your situation may require something different. Learning about these and deciding which to follow will assist you with putting your debts in order – with the first one you’ll pay off at the top and the last, and probably largest at the bottom.  

Meanwhile, if you haven’t already, get your free workbook that I created specifically for you to use through this process – it comes complete with instructions and separate worksheets step-by-step, plus a cash flow calendar.

So what’s the difference?

Snowball

The debt snowball has become mainstream because it massages your ego each time you get a quick win, perfect for keeping your morale up and allowing you to mark off the top few debts in a short period of time.

To snowball, you list your debts by least to greatest total balance. Smallest items like store credit at the top and larger items like personal loans, the car note, and student loans toward the bottom. Your mortgage and other home-related large debts are not included at this time – you’ll focus on those big dogs later. 

This method is simple, based on the balance only (no need to consider rates or anything else) and perfect for someone with several small debts. There’s actually a ton of psychology wrapped up in this whole process, so if you will get a thrill crossing off the smaller debts at the top over the next few months, this method may be for you.

Avalanche

Now we need to talk about the Avalanche method, also called Laddering. In this approach, you list creditors by interest rate, highest to lowest. You work to pay off the highest rate debt first. This works well if you have no credit card debt, but several larger bills like student loans and a car note. This could also work well if you have all credit card debt with balances all near the same range – for example 4 credit cards near 10K a pop.

This method is more for people who like to get into the numbers and really evaluate how much each card is costing. You can use this calculator (or just check your latest statement) to see how much you’re paying in interest each month. If it makes you happier to get your highest interest item paid off first, I’m good with that. 

Pick a Method and Create Some Action

One by one, figure out the interest rate and write your debts in order, lowest to highest if you like the debt snowball method, and highest interest rate to lowest if you prefer the avalanche style strategy. They both have cool names, right?

It’s totally up to you as to which method you use. It completely depends on what your debt picture looks like and which method you feel like doing. Yes, I said FEEL. 

Ladies, we’ve got to listen to our hearts, even when it comes to money. The more you listen to your soul inside, that quiet voice, the one we quit listening to for whatever reason a long, long time ago. Your conscience still speaks to you – you just have to dig it out. 

Avoid analysis- paralysis 

If you have to, make two lists – one using the Snowball and the other using the Avalanche. Look at them closely and decide which one you are drawn to. Here’s an online calculator that may help you decide which method will be best for you.

Don’t freeze in fear of making a choice here. You can absolutely soar like an almighty angel through knowing if your kid is sick enough to need this pain reliever and a nap or to validate that doctor’s appointment. You can hear by the tone of the cry whether your kiddo is really hurt or not. You can tell by the sound of the handle who’s bedroom door opened during the night…c’mon girl, you are completely amazing. 

Got it? Good!

Either method you choose, Here’s what to do:

While making minimum payments on everything else, you pound any excess cash toward that debt at the top of your list. As soon as it’s paid off, you roll all your excess budget to the next debt. You repeat this process on and on down the page. 

For each debt you have, that’s a minimum payment that you owe and monthly cash flow that’s reduced. 

For each piece of credit you pay off, that’s one less minimum payment you have next month, which means more cash to roll into the next debt priority, which also means you can pay that one off faster than ever before!

Where it Gets Tricky

If any of your items are the same value, but one has a higher rate than the other, I recommend putting the item with the largest rate on top, regardless of what method you choose.

Another thing that might be tricky is if two debts have the same rate, but one balance is much lower than the other. In this case, I say put the smallest balance higher on the list because you’ll knock it out faster.

If you choose to avalanche and your highest rate is also a higher debt amount in comparison to your other items, just use some common sense and make sure you don’t have a bunch of smaller debts dragging on that you wind up paying double for while you’re working on that big one.

Are you excited yet?!? Oh, just me? Ok, I’m good with that. 

You’re the B-word… BOSS

A bit of advice that I heard a long time ago that stuck with me like glue all these years is to begin treating your personal finances like a business. You are the CEO of your household and CFO of the money that comes in and out. 

You wouldn’t allow your company to operate in the red each month. You’d fire and hire and cut expenses and increase earnings accordingly. So, I suggest you start thinking about it this way and make the changes you would if you were looking at some business accounts instead of your own. 

There’s Just 1 Rule

While you’re boss-babe-ing up, there’s just one rule to follow. 

Something is better than nothing. Do Something. 

Don’t fall into the trap of just reading about becoming debt free. Don’t think that you just need to spend time learning all the ins and outs of the strategy and searching from guru to coach to podcast trying to figure out what to do.

The key is to START. Make your list, use the calculators, set your automatic minimum payments (as directed in Step2), and put each thing you’re learning into action. 

Now you’re going to read on to Step 3b, where I talk you through creating your budget in alignment with your debt pay off strategy so that you know how much you can pay to that debt on the top of your list. 

At this point, the only way you can screw up is by not doing anything. Today is your day one. Not tomorrow, not Monday, not next month. I know you’ve got this, girl!