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If you owe money on student loans, car loans and credit card bills, you’re not alone. Worrying about paying off debt is a national epidemic. The latest numbers from the Federal Reserve show the total national household debt stands at $13.21 trillion.(1) That’s trillion with a “T.”
Yes, debt is as American as apple pie, but you’ve probably discovered it isn’t as sweet. Stick with us and we’ll show you how to pay off debt and stay out of debt.
What Is Debt?
Anything owed to someone else is considered debt—and that includes student loans and car loans. Ongoing bills like electricity, water and utilities are not considered debt. Those are just variable monthly expenses. The same goes for insurance, taxes, groceries and childcare costs.
Now, how you pay for these expenses can turn into debt. If you use credit cards to pay for these expenses, you’ll accumulate debt.
And while your mortgage is technically a type of debt, it’s the only one Dave Ramsey won’t yell about—as long as you don’t borrow more than 25% of your monthly take-home pay and stick to a 15-year, fixed-rate mortgage. But that’s a different rant for a different day.
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To fully enjoy the benefits of debt-free living, you’re going to want to pay off all non-mortgage debt as soon as possible. And make sure you start with the smallest debt first.
Non-mortgage debt includes:
- School loans
- Car loans
- Credit cards
- Medical debt
- Home equity loans
- Payday loans
- Personal loans
- IRS and government debt
Again, if you owe a balance and make payments to someone, you’re in debt. And the first step to paying off debt is knowing how much you owe.
A study released by the Federal Reserve reported that many Americans underestimate their credit card debt by about 40% and their student loan debt by 25%.(2) That means many Americans owe a lot more than they realize.
We understand that calculating your total debt can be intimidating and, well, frightening. We don’t want you to tally that number just so you know it and then worry about it. We want you to calculate your total amount of debt in order to take action against it.
So, if you’ll bring the courage, we’ll bring a super cool debt calculator tool that will add up your debt and tell you how quickly you can pay it off. All you have to do is answer five simple questions about your debt. No more hiding your head in the sand—it’s time to face the truth so you can do something about it!
Once you get your results, take a deep breath (don’t freak out!) and stay with us. We’ll show you the proven plan that will help you pay off your debt the best way possible. Click the debt calculator below to start kicking debt out of your life for good!
Why Debt Consolidation Doesn’t Work
Let’s get straight to the point on this one: Paying off debt is never easy. You can’t find a quick-fix, but you can find a time-tested, permanent fix if you’re willing to roll up your sleeves and work hard. We’re fully aware of the buzz surrounding “quick ways” to get rid of your debt. Here are the most commonly advertised methods to reduce debt and why we suggest you steer clear of them at all costs:
This is basically a loan that combines all your debts into one single payment. This sounds like a good idea until you discover the lifespan of your loans extend, meaning you’ll stay in debt longer. Also, the low interest rate that looked so appealing at first usually goes up over time.
Debt settlement companies are the seedy underbelly of the financial world. Run from this option. Companies will charge you a fee and then promise to negotiate with your creditors to reduce what you owe. Typically, they just take your money and leave you responsible for your debt. No thanks!
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Never borrow from your 401(k) to pay off your debt! You could get hit with penalties, fees and taxes on your withdrawal.
Home equity loans
It’s never a good idea to borrow money against your home! You jeopardize losing your house if you’re unable to pay back the loan on time. Just don’t do it!
These debt reduction strategies are risky at best, and they’re only treating the symptoms of your money problems. They’ll never help you address the core of why you have financial issues in the first place. You don’t need to consolidate, settle or borrow to deal with your debt. You need to change how you engage with your money.
That’s right—your money will never change until you do!
And that’s why we’re here. We’ll walk you through the proven game plan that shows you how to take control of your money. You’ll learn how to budget, live on less than you make, and pay off all of your debt.
How to Pay off Debt the Smart Way
The best way to pay off your debt is with the debt snowball method. The debt snowball method is a verified debt-reduction strategy where you pay off debts in order from smallest to largest, gaining momentum as each balance is paid off. It’s also at the core of Financial Peace University, the money-management plan taught by America’s most-trusted financial guru, Dave Ramsey.
We know there are a lot of resources out there that will tell you to either pay off your largest debt or the one with the highest interest rate first. While that makes sense mathematically, Dave says personal finance is 80% behavior and 20% head knowledge. Paying off debt is more about your motivation than it is about the numbers.
Here’s a high-level overview of how the debt snowball works:
- List your debts from the smallest to largest balance. Again, disregard interest rates when you’re writing out your debts. Just stick to listing your debts based on the remaining balance.
- Make minimum payments on all debts except the smallest. Attack the smallest with everything you have!
- After you pay off the smallest debt, take the money you were paying on that debt and roll it into the next highest payment. See? It’s a debt snowball!
- Repeat this method until you cross off the very last debt.
Are You Ready to Start Paying off Debt?
The average family who completes Financial Peace University pays off $5,300 in debt and saves $2,700 within the first 90 days! Are you next? Go through the nine-week course with a local group or online in the comfort of your own home. You’ll join 5 million people who’ve used Financial Peace University to budget, save money, and get out of debt once and for all!
Do you want to learn how to never worry about money again? It’s time to take control of your money and plan for your future—Financial Peace University will show you how. Get started today!