What? How? Are you crazy? This may be your reaction to “save your way out of debt!” How is that possible when the average American household in 2020 owed $8,089 in credit card debt?
Many of my clients have confessed: “She used to dread getting the mail and facing another credit card bill. She thought that shopping spree seemed like such a good idea at the time! Besides, she got things on sale! Who doesn’t love a sale?”
But now she had to pay the bill! How? She’d stress over where she was going to get the money, or just pay the minimum payment and promise herself she would spend less, or not at all this month. But habits are hard to break, and so is retail therapy. 🙁
I’m here to show you how it can be done. It’s not going to be a “walk in the park,” but it can be done, IF you’re committed.
Are you ready to get the mail without fearing another credit card bill? How would you feel if you had more than enough money each month to pay your bills, and save?
My clients are amazed that with just a little bit of savings they get so much relief and freedom.
But, before I share my 4 steps with you, I want to remind you there’s no judgment here.
I want you to start from where you’re at and have success over and over again so you can get rid of that feeling of failure, or shame or embarrassment about your debt.
Now let’s get started with my 4 step method to save your way out of debt:
Step 1: Know how much debt you have
That’s right, open all those bills you’ve been neglecting and write down on paper, or a spreadsheet the following:
- Who you owe
- How much you owe
- Minimum payment
- Interest rate
This is the first step, and sometimes hardest step, to acknowledge just how much debt you’ve accumulated. It might bring up feelings of “I’m a failure, or I’m not good with money, or I’m embarrassed about how much I owe.” Remember, no judgment here, I want to help you succeed and take control of your money!
Tip: When you’re looking at those balances, ask yourself, “Do I remember what I bought? Did it give me long-lasting joy?”
You need to understand what is contributing to the underlying behavior of your spending.
Step 2: Establish an Intentional Money Spending Plan aka budget
- Track your expenses, including cash
- Identify where you can reduce expenses (wants and likes)
- Understand and change your money spending habits that “trip you up”
If you want more help on establishing a budget, see my blog on “Pick your budget hack (One size doesn’t fit all!)”
Tip: Only spend on necessities and what you absolutely LOVE. Spending on “Like and Want” items doesn’t cut it! Why? Instant gratification is fleeting, and costly! I know we all experience a little “retail therapy” now and then. But right now, you need to understand the “why” of your spending so you set money goals in alignment with your values. That’s what will bring you joy.
Step 3: Set up Savings Account
- Establish an Occasional Expense Spreadsheet and Savings Account
This is the only savings account for now, and you’re going to start funding the Occasional Expense Savings Account. Why? Because we fall back to using our credit card for expenses that occur occasionally, like holiday gifts, vacations, annual car registration, dental work, vet bills, etc.
You get the picture. These are the items that happen occasionally, but we don’t plan for them in our monthly budget. Now we are going to plan and budget for them in this Occasional Expense Spreadsheet.
Bonus: I’ve already done this spreadsheet, so just email me for a copy.
Tip: You will transfer 1/12th of this budget into the savings account monthly so you don’t default to using your credit card for them. Then when these expenses occur, you’ve already saved for them, so you don’t have to use your credit card!
Step 4: Choose a Method for Paying off Debt
- Transfer balance to zero interest rate card – IF you make sure and pay it off in allotted time
- Avalanche Method – pay off highest interest rate debt first
- Snowball Method – pay off smallest balance first
- Blizzard Method – pay off smallest balance first then switch to paying off highest interest rate debt and continue that method until all debt is paid in full
Tip: Paying off your smallest balance gives you a sense of accomplishment and “I can do this!”. Then switching to the highest interest rate debt and paying that off will save you more money.
Only transfer your debt to zero interest card IF you can pay it off in full in the allotted time. This saves you interest expense which is probably less than any fees charged for the transfer.
For more details on paying off credit card debt, check out my blog here.
These are my 4 steps for saving your way out of debt. It’s worked for hundreds of my clients, and I know it can work for you.
If you want help figuring out how to budget and find that “extra” money to fund your Occasional Expense Savings Account, schedule your free 20 minute money mastery call with me.