Smart SpendingSmart Spending

Want to destroy debt? Start by setting a goal

If you'd like to end up with less debt this year, Step One is making it a goal.

By Stacy Johnson Jan 5, 2010 2:11PM

Hey, let’s go for a ride! Where do you want to go? Nowhere? OK, we’ll just drive around aimlessly and hope we accidentally end up somewhere interesting. Hop in!

 

That’s the way most people plan their lives, financial or otherwise. They may have a vague idea of a destination, like paying off debt, for example. But they’re not really sure how to get there or how long the trip will take. So they waste time driving in circles and wondering, “Are we there yet?”

 

If you feel like you’re not getting where you want to go, this could be why. Because if you don’t know what your specific goals are, you’re not likely to achieve them.   

 

Watch the following video about goal-setting, then meet me on the other side for some specifics to get you started.

 

 

 

 

If you want to live debt-free, Step One is making it a goal. A goal is a destination. You create it by describing where you intend to go as specifically as possible and getting everyone who’s going with you on board. You visualize your goal, then define the exact steps required to achieve it. You divide those steps into manageable tasks. Then you follow through until you arrive. If you don’t do each and every one of these steps, you’ll never reach your destination.  

 

This is explained in detail in my recently released third book, "Life or Debt 2010," but here’s a condensed version.

 

Name your destination. If your goal is to live a debt-free life, write it down. Put reminders on your bathroom mirror, on your dashboard, on your computer screen. Keep it in front of you as much as possible. And when you look at that goal, take the next step.

Visualize it. Visualize your goal: What will your life be like when you have no debt payments? What will you do with all that extra money when you don’t have any credit card payments? Car payments? Mortgage? When all the money that used to go to lenders is now going into a big, fat bank account? How will your life be different? Feel the freedom you’ll experience.

 

Do that every time you see your goal, especially when you first wake up and just before bed.

 

Get everyone on the bus. Unless you live alone, your goals will likely affect those you live with. So if your goal is paying off debt, for example, you’ll most likely need the cooperation of your family. After all, it doesn’t do much good if you’re trying to pay off debts and your husband is out new-car shopping. Make sure your goals are shared and the people who can affect the outcome endorse them.

 

List the steps to achieving it. Obviously, to achieve a debt-free life, you’ll have to pay off all your debts. Start by listing them all, then decide in which order you’ll pay them off. How? In my book, I suggest ranking your debts by starting with the one with the fewest payments left. To do that, list all your debts. Divide the amount owed by the monthly payment. That gives you the number of months it will take to pay them off.

 

For example:

 

 

Debt

Current

Balance

Minimum Monthly  Payment

Months to Payoff (Column 2 Divided by Column 3)

 

Debt Rank

Visa Card

$2,239

$45

50

2

MasterCard

$1,845

$37

50

2

Car loan

$7,500

$212

35

1

Student loan

$11,700

$182

64

3

Mortgage loan

$120,000

$917

131

4

 

In this example, the first debt I’ll pay off is the car loan. Then the credit cards, the student loan and finally the mortgage.

 

Now, in addition to having an overall goal of a debt-free life, I’ve got a more digestible, definable, shorter-term step: to pay off my car loan. I’m going to focus like a laser beam on that debt, applying as much extra money as I can on it, until it’s gone. Then I can move on to the next step of paying off the Visa or MasterCard. 

 

Of course, there are other steps I’ve got to take, like finding the extra money to destroy these debts: In the book, I ask that you set aside 10% of your gross monthly income to do it and show you specifically how to go about finding that money.

 

We’ll be going more into that in coming news stories and blog entries. But in the meantime, start now by setting a goal and ranking your debts for payoff.   

 

One more word on debt ranking: The reason I rank debts by fewest payments rather than highest interest first is that I’m going to use old debt payments to help pay off debts further down the list. It’s a system called snowballing. For example, if I apply an extra $500 a month to my car payment, it will be paid off in about 10 months rather than 35, and I’ll use the $212 I’ve freed up to apply to the Visa or MasterCard.

 

But if you’d rather pay off higher-interest debts first, that’s OK. Just decide and get started!

Following through

And that leads us to the last step in goal realization: following through. Goals like living debt-free take time, so long-term follow-through is critical. That’s one reason you keep your goal in front of you, visualize it as often as possible, and track your results often.

 

Bottom line? When you finance with debt, you’re wasting massive amounts of money -- money you should be using to create a better life. So, paying off debt is definitely a worthy goal. But don’t just wish it. Make it real: Write it down, plan it out, and make it happen. 

 

Note: To go along with "Life or Debt 2010," I’ll be doing 20 related news stories and blog entries at Money Talks News, as well as hosting monthly live webcasts where I’m inviting everyone to participate with advice, tips and motivation -- all with the goal of getting together and destroying as much debt as possible this year. 

 

Related reading:

8Comments
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

LATEST BLOG POSTS

Can you trust Carfax?

If you're thinking about buying a car and the Carfax report comes back clean, you're good to go, right? Um, maybe not. Here are four other ways you can avoid buying a clunker.

VIDEO ON MSN MONEY

TOOLS

More