XY Planning Network is thrilled to join the #DebtIsNotForever campaign from personal finance blogger Jackie of The Debt Myth. We're all about spreading financial education -- and empowerment.
To do so, we asked 6 XYPN advisors to share their best tips and strategies for dealing with debt. Because debt is not forever, and you can reach debt freedom! Use advice and ideas from our financial professionals to get started and make 2015 the year you tackle your debt once an for all.
Acknowledge Your Debt -- All of It!
Cristina Guglielmetti of Future Perfect Planning says that getting everything down on paper is the most important thing when you're ready to deal with your debt. That means looking up and recording every last cent! "Be thorough," she says, "and make peace with your number."
By be thorough, she means "no cheating, 'forgetting' a card, or underestimating." Doing anything less is a disservice to yourself as you work to get out of debt.
"I think the biggest hurdle for people is just facing the total once and for all," Cristina adds. "But often the stress and worry about taking that step is much worse than the reality of executing a plan. Once you have a starting point, getting to the end point can be a lot easier than you think."
Beating Outside Influences to Reach Debt Freedom
Daniel Wrenne of Wrenne Financial Planning points out that we first need to change the way we think about debt before we can make progress to paying it off -- and that means dealing with outside influences from our consumer culture.
"Why payoff the mortgage when you can tax deduct the interest? Credit card points are great! Who needs an emergency fund when you have access to a home equity loan? Let's face it, all the cool kids have debt right?
Not so fast! Debt is commonly the cause of financial ruin. Many Americans are leveraged to the max with debt. Any small bump in the road and they are considering bankruptcy."
Daniel says anyone in debt needs to first acknowledge that it's a financial problem. Then, they need to commit to solving and improving on that problem. He suggests making a "formal debt payoff plan that simple yet actionable with clear timelines," or having fun with it and making the necessary changes into a family game or challenge.
He also suggests using visual reminders for motivation and accountability, and reminds those in debt to celebrate progress and victories along the way.
"Cutting debt is like cutting pounds. Many people can trim the pounds with the latest fad diet -- but it takes true discipline to cut the weight and keep it off. "
Debt Is Not Forever, But It Won't Go Away Overnight Either
Brian Frederick of Stillwater Financial Partners explains that those who are in debt need to understand getting out won't be a fast process. "Just like you didn’t get in this situation all at once, you’re not going to get out of it overnight either."
He suggests developing a sustainable plan of action so you can stick with this over the long haul. "Come up with a plan that you can live with to become debt free in 3-5 years and then work that plan faithfully," he says.
"Research has shown that while people overestimate how much they can get done in a day, they underestimate what they can accomplish in months and years. Remember that a journey of a thousand miles starts with a single step."
Understand the Power of Being Debt-Free
Ben Wacek of Wacek Financial Planning believes that many people fail to understand that any debt means less freedom. "Regardless if you have an auto loan, student loan, home loan, or credit card debt, it means that each month, you have these financial responsibilities in addition to your regular living expenses," he explains.
"These additional financial responsibilities could prevent you from switching jobs, traveling more often, starting a business, or retiring early. It's really important to recognize the freedom that is being given up whenever you take on new debt."
Stay Focused and Take Things Step by Step
Timothy J. LaPean of Thoughtful Financial Planning understands how overwhelming debt can be, especially when you've never sat down to deal with it before. "Focus on one debt at a time," he says. "Pay just a few dollars more the minimum payments on all of your debts except one. Put all of your debt reduction dollars toward only one debt until it is paid off."
As for getting started with debt repayment? He also understands that how we think has a lot of influence on our finances, even when we understand the math in play. "Even though the highest interest rate debt makes the most sense on paper," he explains, "I usually recommend paying off your smallest debt or two first."
This provides a sense of accomplishment, and Timothy says that's critical when it comes to maintaining your motivation.
He also suggests maintaining that motivation by celebrating your successes and progress. "Use one month's worth of whatever you were paying toward that debt to treat yourself to a great experience," he suggests.
But be careful: "Don't use your celebration money to buy a 'thing' because possessions don't impact your long term happiness nearly as much as memories of a great experience do.
Don't Get Overwhelmed, and Remember that Debt Is Not Forever
Katie Brewer of Your Richest Life Planning underlines that important point about not letting debt overwhelm you to the point of inaction. "Organize all of your debt information, pick either the smallest balance or highest interest (depending on your personal preference) and start chipping away at this 'focus loan' while paying minimums on the others!"
She also agrees that celebrating your victories is an important part of this whole process. "Give yourself a reward for each milestone you reach," she advises. "Examples of milestones could be making 3 months of extra payments, paying off half of your first focus loan, and paying off all of your first focus loan."
Want more financial tips from our member advisors and financial experts? Grab your copy of our Consumer Newsletter, published every other Friday, which features advice on how to better manage your money and more!