The True Secret to Paying Off Your Debt

True Secret to Paying Off Your DebtI was in debt for eight years. And like most people, I tried multiple methods, strategies and tactics to get out of debt without success. Only within the last two years of my personal finance journey did something finally click.

It didn’t matter how many minimum payments I made, how many times I consolidated my credit card balances or how I calculated my debts. I came to the realization that the true secret to paying off debt was based on one major thing: creating a budget and sticking to it.

Yes, I know what you’re thinking. Doing a budget is boring and feels like it sucks the fun out of spending money. If it was a few years ago, maybe your assumption would be true. But thankfully, now there are lots of great innovative apps and online tools, that can help creating and sticking to a budget actually be fun!

Changing your words changes your mindset

If you look at creating a budget as a spending plan, you can view it as something that lets you spend money instead of something that keeps you from spending money. It’s all about your mindset. No matter what kind of budget you have, the reality is you need to spend money. Once you come to that realization you’ll be able to create a budget (aka spending plan) that works for you and your family.

Instead of saying “I can’t afford that” or “it’s not in the budget” you can say stuff like “that’s not in our spending plan this month”. Not only does it make you sound less cheap to your peers, it doesn’t have the negative connotation like the word “budget” does.

Finding the right solution for you

There are several different kinds of budgets, spending plans and strategies you can use to track your money. I prefer to use a combination of online tools, mobile apps and spreadsheets. But you may not be a numbers geek like I am, so finding a simpler solution might be better for you.

The point of a spending plan is to find a method that works for you – something you will actually use and not dread working on. I like to use the zero-based budget, where I start with my income at the top of the page or spreadsheet, then I “spend” all my money in different categories. I continue going down the page until all my money is “spent” before the month even starts and equals zero.

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Utilizing multiple kinds of budgets, whether they’re monthly, weekly or annually, depends on different factors in your life. Things like when you get paid, what your expenses are, if you’re an employee or work for yourself, will all have an affect on how your spending plan is created. What works for me, might not work for you and this is just one of the many types of budgets you can use to find the most successful solution for you.

Creating a spending plan that works

Once you’ve decided the type of budget you need, it’s time to create a plan that actually works. To successfully get out of debt you need to create a spending plan that’s realistic and reflects your finances how they actually are – not how you wish or hope they will be.

This is one of my biggest mistakes when I was unsuccessfully trying to get out of debt time and time again. I kept making a budget according to what I should be spending, instead of letting my finances tell me where the money was going and adjusting it accordingly.

No doubt there are some general guidelines you should adhere to when managing your money, but there are way too many variables to account for, which for the most part, makes hard and fast rules basically useless.

Even after you create a spending plan that works, you will constantly have to tweak, adjust and redo it. Even after being debt free for the past 3 months, I still have to create a new spending plan at the beginning of every month to ensure I stay on track with my financial goals.

Tracking your progress

This brings me to my last point, and that’s how important it is to track your progress. As I shared in my latest interview with ReadyForZero, I wouldn’t have been as nearly as successful with becoming debt free, if I didn’t track my progress with their software and share the journey on my blog.

It’s difficult at first to see the numbers and high balances staring at you in black and white, but sometimes we all need a little wake-up call to jolt us back into reality. Most of us are in some way or another visually driven, which means we rely heavily upon graphs, charts and photos to keep us motivated. Besides, it’s much more fun (and therefore encouraging) to see the progress you’re making when it’s on a colorful graph or chart!

If you want to become financially independent, if you want to be debt free, if you want to retire early, then you need to own up to the facts and face your problems head on. There’s no other true secret to getting out of debt than changing your mindset, creating a budget that works and tracking your progress. It’s just that simple.

You should also try ReadyForZero, the free tool that helps you manage and pay off your debt. Check it out!

Image credit: andresr

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  • Marie at Family Money Values

    I’m reading a book I got at FinCon12 that describes a ‘budget’ that doesn’t call for detail exam of where your money goes to set it up. Instead it calls for dividing your income into 3 buckets: 50% for required expenses, 30% for debt repay and savings and 20% for things you want.

    • That is different strategy! I could definitely see that working because it would be easier to manage than if you were trying to track every single purchase. Thanks for sharing, Marie, and let us know if you try that strategy and how it works.

  • TB at

    It’s funny, my wife and me have been getting on track and getting our finances straight and one of the things that’s worked for us is a budget. But we never really used that word. I’m not sure we actually even knew the word for it. My wife and me are both pretty stubborn people though, so when we decided how much money could be spent a month on groceries and clothes and the kids, we stuck to it. Finances is where it’s great to be stubborn. 🙂

    • It’s funny how being stubborn can help with finances, huh? That’s great you guys are using a budget now. Have you noticed any areas of spending that you want to cut down on? When I tracked my own budget I realized I needed to spend less on eating lunch out of the office and instead to bring my lunches from home.

  • Veronica @ Pelican on Money

    My brother struggled with debt and failed to realize that if he’d just look at where his money was going he could manage it better. Although I personally never had much debt, I’ve always been a fan of divvying money into different portions for specific purposes. I guess you could call it a budget? Carrie it’s nice of you to share your journey with us 🙂

    • Yes, I think it’s a lot easier to keep track when you can at least get a sense of which categories you’re spending most in. Glad you liked the article!

  • tracking your progress is important because it will give you motivation to see your debt value go down. It can also kick your butt in gear if it’s not going down fast enough.

    • Absolutely! When you start tracking it, you have no choice but to focus on it and make sure you’re doing what you need to, because if you don’t you’ll see that your progress is stalling (or going in reverse). Thanks for stopping by, Sean.

  • Carrie, I think you nailed it here! The key for us was also gettin on a budget – a paper budget. You have to write it down in some form (whether that is on paper, on a spreadsheet, etc.) or you aren’t really budgeting. We also love the zero-sum budget. IMO, that is the best way to really make your money do what it is told.