Two Cents Tuesday - Pay off debt the smart way

We've been talking a lot about debt these days - last week I shared some tips on how to set up a strong foundation before paying off debt, so you can avoid binge-debting. (Check out that video here).

If you've set up your foundation already; you've saved up a little cushion, and you've stopped the bleeding, you're ready to power through some debt payoff. Where do you begin? Is there a smart way to do it? Are you supposed to avalanche it, snowball it, or something else?

[Check out the video below to hear all the details on the exact process I have my private coaching clients go through]

Here's the simplified version of my 2 step process for paying off debt the smartest way:

  1. Prioritize

  2. Visualize

Prioritizing is all about making a specific plan of the order in which you're going to tackle your debts. I like to bucket my debts by things like type (i.e. medical vs. credit cards), size (i.e. small, big, crushing), interest rate (smallest to largest), as well as how much it hurts me.

When I coach my clients through this step, I always ask "which one keeps you up at night?"

Sure, you could choose the snowball method (smallest debt to largest - great for getting the motivation of an early win), or the avalanche method (largest interest rate first - this makes the most sense from a purely financial standpoint).

I find that most folks have a debt that eats at them. It shames them. It feels itchy.

Start there.

Then, make a list of all your debts, in the order you're going to pay them off (pick a method, whichever appeals to you and the way your brain works), and focus. This step is about making a decision, and then focusing on one debt at a time.

Visualizing is about keeping your awareness high of what you're up to, and making sure you can see and feel your progress. This is often a marathon, not a sprint, and it can feel like you're on a road that will literally never end. The fact that this stuff doesn't feel real is the cause of a lot of loss of motivation and the cure is staying in touch with it. With your progress, with how far you've come, with why you're doing this.

Visualizing can look as simple or complex as you want - it's about getting a visual reminder in your regular space. You could do construction paper chains hanging in your home, ripping one up for every $100 or $500 you pay off. It could look like the background of your computer reminding you what freedom from debt looks like to you. It could be a note to yourself taped to your bathroom mirror. I used to have a tiny note taped to the front of my credit cards that read "do you really want to take a loan out for this?"

The key with visualization is to not let your awareness drop. You're working on making your life better for the long term, and it can be easy to lose track of that when there's a metaphorical chocolate chip cookie in front of you. Instead, surround yourself with reminders of what you're doing, and most importantly - why it matters.

Pop in a comment and let me know - have you found great tips to keeping debt off long-term?