• 7 Steps to Financial Independence

Step 4: Paying Down Expensive Debt

You know how we said that Step 1 was the hardest? If you are carrying a lot of credit card debt, Step 4 is a close second. 

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  1. Earning, Spending and Looking Ahead
  2. Building an Emergency Fund
  3. Employer Matching Contributions
  4. Paying Down Expensive Debt
  5. Setting Big Goals
  6. Preparing to Retire
  7. Seize the Day!

The average American household has over $7,000 in overdue credit card debt. With the average credit card interest rate around 16.6%, the average family is paying almost $1,300 in credit card interest every year. And check your card… some credit card interest rates are over 25%!

Add in car loans, student loans, mortgages, and other debts, and it’s no wonder the debt burden in the US is at an all time high.  

But how do you get out of this cycle of debt? Expensive debt (which we define as anything over 5% per year) is like any bad habit… we know it’s not good for us, but it’s really hard to stop. 

The best research on stopping bad habits and starting good ones all converge on a single point – take small, consistent steps. If you want to get stronger, you don’t start by trying to lift 300 pounds. The best way to get stronger is to do one pushup today, two pushups tomorrow, three the next day, and so on. 

Similarly, instead of feeling overwhelmed by thousands of dollars in expensive debt, take the most expensive debt you have, and pay it off as quickly as you can. Then go to the next one and do the same. 

Paying off the most expensive debt first is called the “Avalanche” method of working your way out of debt. We recommend Avalanche because it is the most effective. There are other ways to do this – Dave Ramsey’s Snowball method is probably the most famous – but there are none that save you more money over time. 

Remember, every month that you pay even a bit more than the minimum monthly payment of your card, you get that much closer to financial independence. 

In BodesWell, we look at your connected accounts and expenses to figure out how much being in debt costs you.  We then show you what we think is going on, and ask you to check what’s right and correct what’s wrong.

Next,  you can add how much money (per month), in addition to the minimum payments, you would like to set aside to pay down the high interest debt that’s holding you back. With that information, we calculate payoff dates for your balances and track your progress as you go. You can see that the end is in sight, and how much it improves your financial future! 

Of course, it’s a journey to get there. It will take time, and there will be moments when it feels impossible. If you fall back into old habits, or if something unexpected wrecks your momentum, you can always readjust. And BodesWell will be there to track your progress and celebrate your eventual victory!

Once you are free of your high interest debt, a world of possibilities opens up. You’ve changed money from a dark corner of your life to a place you’ve cleaned up and started to actually enjoy. 

Now the fun can really begin. 

Next – Step 5: Setting Big Goals

or just try BodesWell yourself!