If you’re feeling overwhelmed or stuck about money and don’t know where to begin, this post is for you. There are so many shiny objects out there: high yield savings accounts, crypto, stocks, real estate, 6 months with no interest, feeling behind because you have less invested than the national average, etc.
For someone just starting out, or just taking control of their money, this all seems like a lot. Too many ideas, products and choices.
You need things simplified and to just start somewhere. Assuming you’ve already assessed your values and have a couple thousand dollars saved, here’s a tangible thing you can do to put you leaps and bounds ahead of where you’ve been, and where you might have been headed.
Pay Off Consumer Debt
This is where the simplification begins. Pay off consumer debt. Don’t have consumer debt? Congratulations! You’re way ahead of the curve and can now truly start with next steps like saving for an emergency fund and investing.
Now back to those with consumer debt (don’t feel bad, many people are in it or have been in it, myself included). It’s time to get focused and pay it off.
Making a decision to pay it off and start planning is a great win, so pat yourself on the back as you’re reading this post. Double pat if you also read my book or ordered it.
List It Out
Here’s the tangible next step anyone can take without much effort. List all your dates in order of least to greatest. For example:
- Credit card 1: $850 at 24% interest
- Store credit card: $975 at 25% interest
- Credit card 2: $2,340 at 23% interest
- Line of Credit: $12,000 at 9% interest
- Car: $24,500 at 6% interest
Then decide if you can sell anything on this list. The one thing that sticks out is the car. If you can sell it, then sell it and cut out that debt immediately. If you can’t, you’ll have to pay it off.
Once you’ve got your final list, it’s time to start paying off that debt! We’re going to use the debt snowball to begin with. It’s not as optimized as the debt avalanche but it provides the greatest psychological benefit as you get the quick wins.
Related: Debt Snowball, Debt Avalanche, or Hybrid Method—Which Should You Choose?
Once you get a few debts paid off, you can switch to the debt avalanche if you want to optimize. This is also called the hybrid method, which I write about in the link above.
The smallest debt is credit card 1 with a debt of $850. Pay the minimum on all your other debts and put as much money as you can towards that credit card. Pay it off as fast as you can.
Progress
As soon as that debt is paid off, congratulations, you’ve paid off a debt! Now it’s time to move on to the next smallest debt, which is the store credit card. Continue to pay the minimum on all other debts and pay off this card as fast as possible.
This time you have the advantage of paying with the funds saved from your first debt paid off so you have more power and will pay off this card faster. Once you’re done, another congratulations and it’s time to pay off the next debt.
Keep repeating this process until all debts are paid off. With each debt paid off you gather psychological momentum as well as more money to pay off the debt from the elimination of previous debts.
Conclusion: Setting Your Future Self Up For Success
When you’re done with these debts, you are officially consumer debt free! You’ve gone from not knowing what to do with your money to paying off all your consumer debt. From deer in the headlights to a powerful person with a clear vision.
Paying off consumer debt is not only a great starting point for someone not knowing what to do with their money, but it is also one of the single most important things you can do with your money and will set you up for a lifetime of financial success.
