5 Money Lessons I Learned While Getting Out Of Debt
When I was getting out of debt, I was learning all sorts of money lessons that I felt I should have been taught years ago. Things like loan terms, budgeting, minimum payments and interest rates have a real effect on our finances and if we don’t understand them, or use them to our advantage, we directly feel the pain of financial stress.
Here are 5 money lessons I learned while getting out of debt that you can use to get yourself out of debt and help your children stay out of debt!
It’s Important to Understand Things Like Loan Terms and Interest Rates
Before I got serious about paying off my debt I consolidated some of my student loans to get a better interest rate. Sounds smart, right? No! I didn’t understand loan terms and while that sounds simple, it’s a trap we can all fall victim to. The possibility of a much, much lower monthly payment gets a certain part of our brains excited and we don’t even realize how much more we’ll end up paying in interest. My advice, do the math and don’t sign up for longer terms unless it’s absolutely necessary, extending your debt doesn’t help.
Minimum Payments Won’t Make Your Debt Go Away
The amount of your minimum payment doesn’t really matter. For example, I used to think that just because I paid over $500 a month on my student loans I was being responsible because that’s a lot of money! In reality, it was that high because I had a lot of debt. Consider your minimum payments just that, the bare minimum.
Do yourself a favor and use a calculator to see how much you can save if you were to pay just a little extra each month. Here’s a great calculator for credit cards and here’s a more general calculator for all loans. When you can see how much money you can save on interest by paying just a little bit more each month, it might be all the motivation you need to pay off your debt. Your hard earned money should be used to live life, not pay interest on debt.
Looking at Statements Is Important
I am a sucker for setting up auto payments. Having to remember to login on a certain day to make a payment does not bring me joy. But, the entire reason I am here today is because I decided to login to my accounts one day and see how much I had remaining - spoiler alert, it was a lot! I wasted years of interest payments because I assumed I was close to paying off my loans.
When we force ourselves to login, see how much we are paying in interest a month and look at how many more payments we have left, we are more likely to change the situation. I’m not saying you aren’t allowed to auto pay each month, but it’s wise to login and be involved with your debt on a regular basis.
It’s Critical to Have Goal Around a “Debt Free” Date
The quickest way to get to the finish line is to know where the finish line is. Committing to yourself to become debt free isn’t easy but it’s a game-changer when we feel the stress and anxiety debt can cause. By setting a goal to become debt free you can keep your head down to do the work while knowing this isn’t forever. Here's a great calculator to help you set a goal to pay off your debt. You’ll be amazed how quickly you change your life when you become intentional with your spending and your goals.
I had a goal of $400 a month that I needed to earn waitressing as a side hustle. If I broke that down, it was only $100 a shift, once a week. By setting a realistic goal of additional income, I wasn’t stressed by the feeling of always needing to make more money. I also committed that $400 to pay extra on my debt, no matter what. If I made more than $400 in a given month it was up to me to decide what to do with it, no added pressure. As my debt total began to dwindle it was amazing how motivated I became to pay even more than the $400.
Every Penny Matters and a Budget Helps
When you commit to your new monthly payment (beyond the minimum payment) it’s important to stick to that number. That monthly payment directly affects the date you’ll become debt free and every time you pay just a little bit less, you are extending your debt free date.
If you are having trouble sticking to the payment try to make that payment at the beginning of the month so you don’t have a chance to spend it as ‘something came up.’ If you are not happy with your debt free date, look at your current spending and see how you can increase that monthly payment, you’ll be amazed how much money we spend on convenience items (like going out to eat because we don’t have groceries). Here’s my free 90-Day Expense Tracker if you need to sort out where your money is currently being spent on.
