Step 4: List your Debts

Step 4 of our 100 steps to Financial independence: List your Debts
Step 4: List your Debts

Now that you’re happily (?) tracking away your expenses, which we know will take a while to keep doing before we have a solid, reliable list, we are going to continue with other steps we can take in the meantime. To start with, we are going to pull up an overview of any outstanding debts – also known as liabilities – you have. Sounds like fun? No I didn’t think so, thinking about your debts is usually not a lot of fun, but since your debts are probably also one of your biggest worries or financial strains anyway, we need to find out how bad (or not) the situation is to begin with.

Borrowing money is a relatively common thing in our current society and although it might sound like a great way to finance big purchases, the problem is that as long as you have debts, you are not only tied to paying back money all the time, you are furthermore consistently losing money. Borrowing money comes at a high price: the interest that you are charged can been enormous and in later steps we’ll look at how quickly this interest can add up to massive extra charges. Yet we seem to always be borrowing money these days, first to get through college, then to buy a car, a house, that fancy holiday and it becomes more and more of a habit to buy first and finance later. And kid yourself not: unless you are paying off your credit cards in full at the end of each month, the overdraft on any of these cards are loans too!

Any debt that you have indicates that you are not financially free, so in order to work towards improving our situation we want to first get a clear picture of any outstanding debts you have so that you know exactly how much money you are paying off monthly, how much in total you are still due to pay and how much longer this will affect you financially.

Does this mean that if you have a lot of debts, you are in a hopeless situation? Not at all, as we’ll soon find out how even small extra payments can make a tremendous difference to the overall cost and life span of a loan. So once we have it clear what our liabilities are, we can start working towards taking control over our situation and making some positive changes to our finances.

Step 4 – List your Debts – in detail

This step requires some investigation, so hopefully you’ve got your administration and paperwork organized. If not, don’t let that put you off, just grab the phone and contact your bank or loan provider(s) and find the information that way! Don’t give me excuses that you couldn’t it work out and had to give up. Take matters into your own hand regardless of how organized your administration is.

  • Make a list in your notebook, journal or digital spreadsheet of any outstanding debts that you have. Think about:
    • Student loan
    • Mortgage
    • Car loan
    • Credit card(s) debts
    • Overdraft on your bank account
    • Personal loans with friends / family
  • Find statements, contact providers or log in to online accounts to find the exact outstanding amount (i.e. the money that you still owe) on each one of the different debts and write this down in a second column next to each loan.
  • Find out how much you are paying back monthly on each of these debts and write this payment next to each loan in a third column.
  • A fourth column will be for the interest rates for each loan, make sure to note down the yearly percentage, not the monthly rate!
  • In the fifth column find out the amount of time that you have left to pay the loan back – if applicable (this is usually especially for a mortgage but can also apply to other debts).

I appreciate this can be a very confronting step, but remember that all beginnings are tough. But you’re done for today, so put your feet up, grab a beer, your favourite book or run a bath and celebrate you’ve got 4 steps out of the way already! Oh, and did I mention it is okay to feel a little depressed after this step? As always: don’t let that make you feel demotivated! We’re soon going to attack these debt and kick butt for real to stop them from controlling us and our finances once and for all. So cheer up and re-read the commitment to your mission you wrote and / or your goals and get that motivation up again. The next step will be a positive one anyway, in which we’ll look at more exciting numbers: a list of what we own, to hopefully provide some balance to these figures.


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