2534: How To Pay Off $10,000 Of Debt In One Year by Robert Farrington of The College Investor on Financial Health

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[00:01:47] How to Pay Off $10,000 of Debt in One Year by Robert Farrington of TheCollegeInvestor.com

[00:01:54] and I'm Dr. Neil Malley. Hey there and welcome to our Sunday bonus episode where I share an article

[00:02:00] from one of the other podcasts in our network. Today's post comes from Optimal Finance Daily

[00:02:06] where articles covering money and personal finance are read to you every day. And you can find

[00:02:11] Optimal Finance Daily wherever you're listening to this. Please subscribe or follow to get episodes

[00:02:17] every day. And with that, here's Diana with the post and commentary as we optimize your life.

[00:02:45] Most people will still have getting out of debt and building wealth as top goals.

[00:02:49] If eliminating some of your debt while simultaneously improving other parts of

[00:02:53] your financial life are among your goals, this post is for you. It's time to take

[00:02:58] back control and kick your debt to the curb. It can sound like paying off large amounts

[00:03:04] of debt in a short period of time is impossible, but it's not. You can even pay off $10,000

[00:03:09] of debt in just one year. Whether you have student loan debt or credit card debt, there are options.

[00:03:16] Here's how you can pay off $10,000 of debt in one year.

[00:03:20] Step 1 Work Backwards The first step in any good debt payoff plan is

[00:03:26] knowing how much money you need to come up with in order to meet your goal.

[00:03:30] Saying that you're going to pay off $10,000 of debt in one year isn't good enough.

[00:03:34] You need to break down that number so that you can hit smaller milestones.

[00:03:38] The simplest way to make this calculation is to divide $10,000 by 12. This would mean that you

[00:03:44] need to pay $833 per month to have contributed your goal amount to your debt payoff plan.

[00:03:51] This number though doesn't factor an interest on your debt. If you want to see the impact of

[00:03:56] interest and how much you can save by accelerating your debt payoff plan,

[00:04:00] you can use a debt calculator like the one provided by bank rate.

[00:04:04] For an example, we're using a $10,000 credit card balance at a 16% interest rate.

[00:04:10] In order to pay the balance off in one year, payments of $907 per month would be needed,

[00:04:15] which would save over $4,000 in interest, a huge savings. You can use a debt repayment

[00:04:22] calculator to tally up all of your current debts and see what you could save with an

[00:04:26] accelerated debt payoff plan. I can tell you that after a decade of helping people get out

[00:04:31] of debt, simply getting organized and understanding your debt is the number one reason why people don't

[00:04:38] make forward progress. Number two, decide on your strategy. If you only have one loan or credit card,

[00:04:45] you don't need to worry about coming up with a strategy other than how much your monthly payments

[00:04:49] will be of course. You can simply choose to automate your payments and consider yourself done.

[00:04:54] However, if you're working with multiple loans and debts, you'll have to determine in what

[00:04:59] order you'd like to pay those off. There are two popular strategies for doing this, the debt snowball

[00:05:06] and the debt avalanche. Debt snowball method. With this method, you'll list your debts from

[00:05:12] smallest balance to largest balance and work on paying off the smallest balance

[00:05:17] while making minimum payments on everything else. Once the smallest balance is paid off,

[00:05:22] you move on to the next smallest while still meeting all other minimum payments.

[00:05:26] This is the method popularized by Dave Ramsey and the goal is to get some early wins by eliminating

[00:05:32] small debts, which in turn boost your attitude towards paying off the remaining debts. Plus,

[00:05:38] putting that extra money towards the next debt helps eliminate it faster. Debt avalanche. With

[00:05:45] this method, you list all of your debts from highest interest rate to lowest interest rate,

[00:05:49] then you focus on putting all of your extra money toward your highest interest rate

[00:05:53] while making minimum payments on the rest. This method is mathematically the lowest cost

[00:05:59] approach to paying off your debt, but it could also mean a longer stretch before you see wins.

[00:06:05] There's a lot of debate over which method you should choose and there's no right answer.

[00:06:09] The debt snowball method is a great option if you like quick wins and want to eliminate

[00:06:13] smaller bills. The debt avalanche method is great if you're focused on saving the most money

[00:06:19] in interest. Once you pick your strategy, you should also consider how often you'll make extra

[00:06:24] payments and whether or not to automate your plan. Step three, free up money in your budget.

[00:06:31] At a glance, paying off $10,000 in a year can seem like a huge number. However, once broken down,

[00:06:37] coming up with the extra money isn't as hard as it seems. If you're serious about getting

[00:06:42] rid of your debt, one of the first places you should look is your current spending. There

[00:06:46] are always ways to stretch more out of a budget with minimal effort. Here are some things to consider.

[00:06:54] Monitor your spending. It's impossible to know where to cut back if you don't know where you're

[00:06:59] spending. You can sign up with a service like Personal Capital for free. Personal Capital will

[00:07:04] automatically monitor and categorize your spending after you link your bank accounts.

[00:07:10] Participate in an Uber Frugal Month. Cutting back on spending has just as

[00:07:15] much to do with mindset as it does with actual needs. Early retirees, Mr. and Mrs. Frugal Woods

[00:07:21] have had immense financial success through practicing frugality without feeling deprived.

[00:07:27] In January, they host an Uber Frugal Challenge for a month. This challenge can help you lower

[00:07:32] your costs and discover alternative ways of utilizing your money. Easily save an extra $500

[00:07:38] per month. It's very likely that you are needlessly spending money without realizing it.

[00:07:44] I have a post that breaks down 15 simple ways you can squeeze an extra $500 out of your budget

[00:07:50] each month. If all of these ideas are applicable to your situation, you'll free up $7,000 over the

[00:07:55] course of a year. Budget for your personality. One of the biggest mistakes new budgeters make

[00:08:02] is trying to adopt a system that doesn't fit their personality and that they won't stick with.

[00:08:07] The trick to making a budget work is finding a way to make it a regular part of your life.

[00:08:12] Step 4. Earn more if you need to

[00:08:16] While it's always a good idea to trim away the fluff in your budget,

[00:08:20] it's also important to look for ways to earn more if needed.

[00:08:24] Depending on how much extra money you need, you may be able to get by with putting in

[00:08:28] a couple hours per week over time or you could start a side hustle to earn more.

[00:08:33] Earning more money is a perfectly viable option for the majority of the US population.

[00:08:39] This was one of the most important strategies for myself when it came to paying off my student loan

[00:08:43] debt. I was able to earn an extra $2,000 per month by selling stuff on eBay and starting this blog.

[00:08:50] Step 5. Track your progress

[00:08:53] Paying off $10,000 in one year is not an easy feat. It will take hard work and you'll

[00:08:59] probably have to recommit to your goal a few times. One of the best ways to keep

[00:09:03] yourself motivated is to continually track your progress and celebrate the small wins.

[00:09:08] When things get hard, don't give up. In a year from now, you'll be thinking yourself for sticking

[00:09:13] with the plan. Finally, make sure you do reward yourself at small milestones. It's a lot of work

[00:09:19] to pay off debt, so congratulate yourself every now and then. You just listened to the post titled

[00:09:28] How to Pay Off $10,000 of Debt in One Year by Robert Farrington of TheCollegeInvestor.com

[00:09:35] I couldn't agree more with Robert on the debt repayment calculator.

[00:09:39] There are so many free ones online, so I'd encourage you to do a quick Google search.

[00:09:44] The one I used allowed me to enter each of my debts, their interest rate,

[00:09:48] minimum payment and total balance. Then based on my knowledge of my income and other expenses,

[00:09:55] I came up with the amount of money I plan to throw at my debt each month. And the calculator

[00:10:00] showed me how much I should pay towards each debt to pay it all off the fastest.

[00:10:05] I use the Avalanche method, which is when you pay off the highest interest rate at first,

[00:10:11] but I know many people also like the Snowball method where you start with your smallest debt

[00:10:15] to build some momentum and confidence. The great thing about the calculator I used was that it

[00:10:21] showed me what both options would look like with an easy click of a button, and it made the

[00:10:26] Avalanche choice an easy one because I could see that I would be debt free so much faster.

[00:10:32] Whichever method you choose, you'll be well served by using one of these debt reduction calculators

[00:10:37] and getting yourself organized. I also loved updating my plan anytime I found myself with

[00:10:44] extra funds to throw at my debt. It was so satisfying to see the calculator reduce the

[00:10:49] time it would take me to get debt free. Going about it this way was like gamifying the

[00:10:54] process. And so if you're a competitive person like me, it can be very fun to watch yourself

[00:10:59] win against your original debt freedom plan. And that will do it today. Have a great day and

[00:11:05] weekend. Thank you for listening, and I'll be back here tomorrow where Optimal Life awaits.