If you have debt, what do you do first? Where do you even start when you feel financially in over your head? Do you ever feel like you just can’t breathe because debt keeps you in a constant state of panic? I’m sure you have if you have said to yourself:
I can’t sleep, I can’t eat.
I panic all the time.
I’m so overwhelmed.
Where do I start?
Sometimes it can feel like you are creating your own stress. It is totally okay to be angry or upset but then it’s time to get to fixin’ the problem. Here’s what do to first when you’re in debt.
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1. Figure out where every single dollar is going each month
I do this through a budget. You can download the budget toolkit which is the same spreadsheet I have used since 2011 to track my income and expenses. If you do not know where your money is going, you will have a hard time understanding and fixing the problem.
If you don’t like using a spreadsheet, then try a sheet of paper and pencil. One of my Budget Bootcamp couples ended up using a whiteboard. Every day when they came home from work, they updated the totals. It kept them accountable and they put the whiteboard in their kitchen so they could look at it every day.
The number one tool that helped me get out of debt was my budget. I don’t care how you do it, just find a method that works for you and stick with it!
2. List out all of your debts
Student loans, credit card debt, car loans, and personal loans are all debt. It is your responsibility to go find all of your debts and list them out. You will need the following information:
- Minimum monthly payment
- Interest rate
- Total outstanding balance
If this is your first time really looking at your finances, I would suggest taking time to organize your budget and your debts first. Don’t make any drastic changes. You’re not there yet! You also need to make sure you can cover the essentials in the event of an emergency.
If you do not know where all of your debt is at, you can pull a free credit report through Credit Karma or Annual Credit Report. You will need to provide personal information like your social security number, current address, and birth date in order to access this information.
For student loans, head over to the Federal Student Aid site. It’s free to sign up if you don’t have an account created. If you took out any federal student loans, all of those will be listed here.
3. Make sure you have a separate savings account for an oh shit fund of 2-3 months of living expenses.
Dave Ramsey talks a lot about having $1,000 in an emergency fund as part of his baby steps process. But, in speaking with the Debt Free Millennials community on Facebook, a ton of us actually require more than $1,000.
Maggie went without pay for nearly eight weeks during the 2018 government shutdown. Thankfully, she had a larger emergency fund and an understanding landlord. Her landlord let her delay rent payments until she was paid again.
Then there is Amy who went without air conditioning in her car during a hot summer in Iowa. If you have never been to Iowa in July, rest assured it’s hot as balls and an A/C-less car is not fun. The repair would have wiped out her $1,000 emergency fund so she decided to forego it. She wanted to have the funds for something more dire, like emergency hospital visits or taking care of her pets.
“Dave Ramsey says $1,000 is enough, but millennials actually need more money in their emergency funds.”
Your first financial goal after you set up your budget and list your debts is to set up a savings account for emergencies.
Why? Because if an emergency arises: flat tire, cell phone dead in the pool, your husband jams his finger playing basketball, etc. You will want to have cash set aside so you don’t put yourself into more debt.
There are more steps that you can take to get out of debt, but I don’t want to overwhelm you with too many options in this video. First step: download that budget toolkit, or use any budgeting form that works for your head and start writing it all down.
How writing everything down helped me with debt
I had no idea I spent $170 per month on gas when I first started to pay off $35,000 of debt. Mind you, I was driving a two-door Ford Escort ZX2. It’s pretty gas-friendly, but yikes.
Once I wrote everything down, I felt more in control, even though I hadn’t changed anything. Just knowing where everything was helped me come up with my debt free plan. I could also see where I was spending money that didn’t make sense. For example, I was spending money on cable when I am more of a Netflix and movie kind of girl.
For those of you who haven’t looked at your finances, it’s time to rip off the band-aid. Not looking at your finances is a sign of disrespect to your money. When you take the time to review your accounts, you show respect.
“Not looking at your finances is a sign of disrespect.”
Ready to make this happen? Take a note from Beyonce, “I dream it, I work hard, I grind ’til I own it.” The lyrics to “Formation” need to be applied to your finances. Let’s own your finances. Tell me below what is your action item!