4 steps to pay off large debts quickly
These four steps, exemplified by the story of an American businesswoman on CNBC, could be a helpful guide for those burdened by debt.
At the age of 24,Jaime MastersShe graduated from college and landed a six-figure job. She got married, has two dogs, owns two houses, a new car, and is expecting a baby.
Life was pretty good if it weren't for the debt. At the time, Masters owed $19,300 for her car, $26,180 for student loans, and $24,560 for a mortgage. She owed a total of $70,000, was unhappy with her job, but was the primary breadwinner for her family.
Masters began wanting to get out of debt while pregnant. And 16 months after she started her debt repayment plan, she had completed it. Currently, she is a speaker, author, and host of programs on business and entrepreneurship. She shared with...CNBCRegarding the four steps I once used to get out of debt.
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Jaime Masters is currently a speaker on entrepreneurship and business. |
Method selection
Like many others facing a mountain of debt, Masters didn't know where to begin. So, she researched and chose Dave Ramsey's 'Snowball Method'.
First, she sold her two-month-old Honda Civic and the family's older Jeep to buy a 2000 Jeep Cherokee. The surplus money was used to pay off her debt, reducing her total debt to $55,440.
Masters then applied the remaining steps of the 'Snowball' method. Specifically, this method advises you to pay off the smallest loans first while continuing to make minimum payments on larger loans.
Once you've paid off a loan, you continue using the monthly payment amount to pay off the next loan, until everything is paid off.This method also notes the option of focusing on paying off loans with the highest interest rates first, then gradually paying off those with lower interest rates.
Review spending
Masters didn't keep track of her spending until she decided to pay off her debt. She and her husband started cutting cable TV, reducing their mobile phone bills, stopping eating out, and creating a budget for essential household expenses.
"It wasn't easy at first because I was used to spending lavishly. I felt like I was completely changing my lifestyle. But then I got used to it," she said.
At this stage, for easier review, first check your credit cards and bank accounts to see where your spending is going. Note what you can afford and what you need, such as rent, food, and utilities.
Next, identify the expenses you can cut. Can you reduce your phone bill? Can you live in a cheaper house? And can you cook at home instead of eating out?These are small changes, but you'll have some extra money to pay off your debt.
Earn extra income
Along with cutting costs and creating a budget, the coupleMastersThey also focused on earning as much money as possible before their children were born. "We worked harder and sold more yard sale items to increase our income," Masters said.
Masters decided to work onsite (working at the client's headquarters). This meant she had to travel more but earned an extra $40 per day. Meanwhile, her husband supplemented his income by taking on web design jobs. They also sold yard goods at summer sales, listing unused items for sale online.Craigslist and selling clothes on eBay.
In fact, ways to increase income for couples are not too difficult to learn. Besides earning extra income through their professional skills, the sharing economy also allows many people to earn money without requiring special abilities. For example, you can work as a part-time delivery person or as a driver for a ride-hailing company.
Start a savings fund
Just before giving birth to her son, Masters only had one student loan payment left to make. But she hesitated to pay it off because she needed to save money for the upcoming birth. So she called directly.Dave Ramsey.
"I called Dave Ramsey and asked for his advice. He advised me not to pay off the final loan but to hold onto the money until the medical bills were settled," she recounted.
When his son was born, Masters had $23,000 in the bank.She used the money to stay home with her child for a few months. Then, she returned to work and paid off her student loans within a month and a half.By the time his son was four months old, Masters had paid off all his debts, quit his job, and started his own business.
According to Masters, the hardest part of paying off debt is keeping it.Responsibility. “The responsibility is huge. My husband and I share the responsibility and will support each other when things get tough. We also tell people about our debt repayment plan, which helps keep us on track,” she said.
