4 Ways I Ditched Debt and How You Can Too
Being buried under a mountain of debt is a heavy burden to bear. It causes immense stress, restricts your financial freedom and holds you back from achieving your goals.
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But the good news is, no matter what situation you are in, you can get out of debt once and for all. It won’t be easy, but you can ditch that burden and start fresh.
To get some advice, we spoke to Joey Ruffalo, owner of J.R. Financial Coaching, and a true expert on getting debt-free. At one point Ruffalo owed a staggering $370,000 of debt. Here’s his story.
Create a Detailed Budget
The first step is to create a budget. You need to identify areas where you can cut back and where you can allocate more toward paying off your debt.
“My core value is ‘the budget is the foundation upon which your financial house is built,'” said Ruffalo. “Knowing what is coming in and going out each month is an important baseline in your financial journey.”
Once you have a clear picture of your spending habits, you can start making adjustments. Look for ways to reduce expenses. Every dollar you can free up from your budget can be put towards your debt.
“Having a budget allows you to prioritize your finances,” said Ruffalo. “You see where everything is going, and you can make adjustments, freeing up extra cash to assign to debt payments.”
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Start Building an Emergency Fund
As you work to pay off your debt, consider starting an emergency fund in parallel. This gives you a safety net of cash reserves to cover unexpected expenses like medical bills, home repairs or losing your job.
“Some recommendations are to have a minimum of $1,000 set aside,” said Ruffalo. “I do suggest a little more, depending on your family situation, such as if you are married or have kids. In that case, I coach my clients to add an additional $500 per extra family member. For example, if you are married with two children, I would recommend $2000. This was an essential step on our financial journey.”
It might seem counterintuitive to save money instead of throwing every extra dollar at your debt balances. But having an emergency fund can actually prevent you from going deeper into debt. Without an emergency fund, you could be forced to rely on credit cards or loans again, which would undo all your hard work.
Use the Debt Snowball Method
With the debt snowball method, you list out all your debts from smallest balance to largest, regardless of the interest rate. You then focus on paying off the smallest debt first while making minimum payments on the rest. Once that smallest debt is paid off, you “snowball” that payment amount into paying off the next smallest debt, and so on.
“This method, while not always mathematically the best, does tackle the psychological aspect but quickly gives you some positive associations, fueling you to continue,” said Ruffalo. “When we were $370,000 in debt and had our water and lights turned off and a three day notice to pay rent on our door, having a plan and an immediate goal gained us some clarity.”
The benefit of this approach is the boost you get from knocking out entire debts one by one. The quick wins give you the momentum you need to stick with your plan. You’ll see the number of debts you owe get smaller and smaller, and it will become easier to stay on track.
Increase Your Income
Cutting expenses is undeniably important. But if you have more money coming in each month, you can accelerate the pace of your debt repayment even further.
“You need to give yourself a bigger shovel when it comes to reducing debt,” said Ruffalo. “That means increasing your income along with decreasing your expenses. Anything you can do to increase income will go a long way. Remember, these are not tasks you are going to do for the rest of your life. They are ‘goal jobs’ used to meet specific goals in your financial journey.”
There are endless opportunities to earn extra income on top of your regular job. Ruffalo and his wife left no stone unturned when it came to earning extra cash flow.
“During the process in which we paid off over $370,000 in debt, we worked every extra job we could,” said Ruffalo. “This included things like driving for Uber, delivering groceries for Shipt and Instacart, packages with Amazon. These are still viable options in 2024. There are a few newer opportunities thanks to apps. Renting out your spare bedroom on Airbnb or similar sites. I have worked with clients who have rented out their extra car, even their backyards for doggie play dates, and their pools for neighbors to use on hot days. The important thing here is not to let these jobs cost you money.”
To stay motivated during the debt grind, Ruffalo and his wife made a game of it.
“When we were working on a debt, say we had $2500 left to pay off, we would see how fast we could pay it,” he said. “$2500 in 60 days would come out to about $42 a day, which was $21 between the two of us. What could we do that made $21 extra? We always shot for more than that which would allow two things, one–to pay off the debt much faster, and two–give us a day off when we needed it to avoid burnout.”
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This article originally appeared on GOBankingRates.com: 4 Ways I Ditched Debt and How You Can Too
