Becoming debt free might or might not have been a goal you identified when you put together your principal financial goals in step 2. Whether this was the case or not, you hopefully have realized that becoming debt free is possible with some extra effort and money, and in your interest (no pun intended) if you want to avoid paying the extra costs of oustanding loans. It might take you three years, 10 years or 20 years, but being able to say you have finally paid down all your debts is a huge achievement. And as we saw in the last few steps, the time it takes to pay off a debt can be sped up incredibly by making extra payments.
The next part of your mission and the main focus of this current step is for you to set yourself goals to pay off your debts. You will set yourself a target date to pay off the first debt that you have already started working on, then for each and every other debt you will do the very same, all the way to the very last debt you will be attacking. That will be your target date to becoming completely debt free.
Just consider for a moment how exciting and liberating that feeling will be, when you have finally paid it all off, no more debts, no more interest to pay and no more monthly payments taken out of your monthly pay for an expense that you made months or indeed years ago but indeed were suffering the consequences of for a long time.
Now you might wonder whether you will be able to accurately predict every single date you will pay off each debt? Of course not, but don’t see these goals you set yourself as being set in stone. Of course your situations will change. You might have a financial windfall or an unexpected situation that forces you to cut down on your monthly payments. You might see your family expanding, meaning less money might be available or you might become so motivated by seeing the first results that you manage to find even more money to be put towards paying down your debts. Whatever it is, just see the dates you set as goals for the moment, but know they can and most likely will change. Still you are more likely to achieve a goal that you regularly update and adjust than not setting any goal at all.
Step 24 – Set goals to become debt free – in detail
- Look at the debt you identified as the first debt to pay off from step 23. With the outstanding amount and the total monthly payment you will be making from now (including any extra money you’ll be putting towards this every month), how many months will it take you to pay it off?
- Do you expect to be able to make any extra payments during the year? Any Christmas money you might get? A potential bonus? Part of a pay rise you might be getting?
- Using an online calculator see how many months it will take you with any potential extra payments to pay off this debt completely.
- Starting from today’s date, determine the date that gets you to, i.e. count the number of months in order to pay it off forward. Put that date down as a target for this debt, add it to your financial goals, mark it in your calendar or start a count down. That will be your milestone number 1!
- Now decide on the debt you’ll want to pay off after paying off the first. Use your online calculator to see how much the outstanding balance on this debt will be by the time you have paid down your first debt, just working off your minimal monthly payments. Then starting with that amount, calculate how many months it would take if you were to add the amount that you paid off monthly for your first debt in addition to the minimum you are already be paying. As before, calculate when you’d be paying off this debt completely and again add that date to your goals.
- Continue the same procedure for any other debts you have until you determine the date when you finally pay off that very last debt (excluding your mortgage if applicable). Again write all dates down and make an ever bigger note of the date you pay down your final debt, i.e. when you become debt free!
Getting to that moment of being able to say you are debt-free, and knowing you won’t take on any further debt nor won’t need to make any more monthly payments to pay off those debts will be an amazing, one to look forward to and to celebrate when that moment is finally there! It might seem it is not going to happen any time soon, but remember to keep your motivation up. Once you get started, you might be surprised how often you manage to pay off a debt ahead of your target date 🙂
Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.