Tuesday is Pay Off Debt day at Military Saves Week 2013. I think this is my favorite day because I have seen the impact of being debt-free in my own life. As I’ve discussed, my husband and I had significant debt when we married. It was pretty bad, but we focused, paid off that debt, and things have been pretty good ever since. I can honestly say that paying off debt has been the single best thing we’ve ever done for our finances.
The Military Saves website has a good primer on getting out of debt, but I (of course) have to add my own suggestions.
Know What You Owe
I think this is the absolutely essential first step for anyone who wants to build a solid financial future. Take a sheet of paper and all your bills, and write down every debt you have, with the interest rate, the monthly payment amount, and the term if it is an installment debt. You don’t have to do anything with the list except look at it. Know it. Be aware of your situation.
Reduce Your Costs
Call your creditors, and ask them to reduce your interest rate. This won’t always work, but it definitely won’t work if you don’t ask. Credit card companies will often lower your rate if you ask, or if you tell them that you’ll close your account. (Don’t ever actually close the account, though; it will hurt your credit score.) Cars can be refinanced. Things can be worked out. There are all sorts of ways to reduce the interest that you pay on debts, and don’t quit trying until you are sure that you have exhausted every possible option.
Make A Goal
A vague notion that you should pay off your debt is nice, a definitive plan will actually work. Look at your debt situation, and make a goal: I will pay off all my credit cards by May 2014. I will pay off my car by January 2014. I will pay off my student loans by December 2016. Making a goal helps focus your efforts and reinforces the idea that you won’t be stuck under this debt forever.
Work As A Team
Paying off debt will never work if your husband or wife is not on board with your plans. Discuss your dreams, such as buying a house, and how paying off debt will help make your dreams come true. If you are not married, share your goals with friends and family. Not only will you have their support along the way, but they will help you do the smart things you need to do, and they might even join you as you pay off debt.
As I said, paying off our debt was the single smartest thing my husband and I ever did. (Second was starting IRAs and a TSP.) We can live our life knowing that our only expenses are those that we choose to incur in a given month, without last year’s purchases (or decade’s purchases) creating financial chaos in the present. I promise you, you will never be sorry if you pay off debt.