Debt is one thing that almost every American has in common. According to Debt.org, the average consumer debt, which does not include a mortgage, for 30-39 year olds is $26,500. That means that the average American has $26,000 of credit card debt, car loan, personal loan, medical debt or any other type of personal debt you can think of. This does not include the average mortgage debt which is around $200,000 borrowed for a person. Unfortunately, debt is a common mindset for Americans today. Too many people bite off more than they can chew which causes mental and relational issues. We can avoid these issues by making better decisions when borrowing money.
Debt Payoff Methods
Debt Snowball Method
The snowball method may not make mathematical sense, but it makes human sense. This method consists of a list of all your debts from lowest amount first to highest amount regardless of interest rate. You then pay the minimums on all debts and put the rest of your money allowed for debt on the lowest amount until it’s paid for. The idea is that you will be able to knock out the smaller debts quickly which will create momentum. Being human, the momentum will show progress which will keep you motivated to finish paying off all your debts. You will pay more in interest, but it will be worth it to feel like you are making progress.
Debt Avalanche Method
The Avalanche method consists of listing all your debts from the highest interest rate to lowest interest rate. You will pay all the minimum payments, and whatever is left, you will put all on the highest interest rate. This makes the most mathematical sense. The only potential issue is that if some of the higher interest rates have a large amount owed, you can get tired of paying the same debt causing mental fatigue which can lead to not finishing. But if you are consistent and persistent, this could be the method for you.
Debt Settlement
A Debt settlement is when you come to an agreement with your creditors to “settle” your debt for a lump sum. If you are at a point in your financial life where you have too much debt, you can always call each of your creditors to try and settle. Talking to your creditor and negotiating a lump sum payoff may be a quality option for you. At times these creditors will settle a portion of your debt owed if you could offer a lump sum. Just make sure you get all agreements in writing and have the creditor reporting the account as “settled”. You never know unless you ask.
Payoff Mindset
Although you need to take action to pay off debt, it is first important to have the right mindset to become debt free. Having debt is too common in America today. We always want the next “thing” now and refuse to wait for it. We want to make a million dollars now, we want the new $80,000 truck now, we want the $700,000 home now. All these things are possible to achieve, but they take time and a plan. As a society, we use debt to make it appear that we are successful and wealthy when really, we have a $1,000 a month truck payment, a $4,000 a month mortgage, and we just took out a HELOC to put on that addition to our house. Even though the lenders will lend you all this money and maybe you just make enough to make all these payments, you are not setting yourself up to acquire wealth and have a less stressful life. Having the mindset of living on less than you make, delaying your wants to accomplish your long-term goal of wealth and not owing anyone anything will get you to the best place in life financially and mentally.
Debt Free
To become debt free is a grind. Having the mindset that you don’t want to owe anyone anything is powerful and rare in today’s society. Going against the grain and taking a different approach can create major dividends in the long run. Imagine sacrificing for ten years so you can live a happier and wealthier 50 years. Creating a budget that pays off your consumer debt in a few years, then using that budget line to then focus on paying off your mortgage and turn your 30-year mortgage into 7-years. Imagine all the wealth you can accumulate without a mortgage payment? Imagine all the trips and things you can spend your money on knowing everything you own is paid for and no one can take it away from you. Imagine not being stressed wondering if you can make this month’s payments. It is so attainable for you to achieve this goal of being debt free. Just like everything else, it takes time and consistency. But it can be done and it’s completely up to you.
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