8 Questions to Ask Before Paying Off Debt
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It’s typical to have a lot of questions before paying off debt. You may wonder if you can pay off debt fast, or if you can even achieve debt freedom. These questions can linger, but they can also provide insight and motivation to help you kill your debt for good.
Committing to improving your financial situation is always an exciting time (or it should be!). You’re looking forward to a new start; a life where you’re not stressed about money 24/7, where you’re not worried about opening the bills that come in the mail and where you can face any emergency head-on because your savings are enough.
There’s one little thing you should know before you start to pay off debt, and it’s something no one wants to believe, but everyone will face: your enthusiasm won’t last.
Unless you can accomplish your goals in the span of a few months (which isn’t true for most people), your enthusiasm will wax and wane, and paying off debt is no different. If you go into it with unrealistic expectations, you’re only setting yourself up for disappointment.
Don’t worry – asking yourself these eight questions before paying off debt will give you a better picture of what to expect!
#1 – Why am I Paying Off My Debt?
First, you need to get clear on why you’re paying off debt, and frankly, that reason should be intrinsic. You should be paying off debt for yourself or your family. Not because “it’s the right thing to do” or “because my financial planner told me so.” Those aren’t strong enough reasons to get you through the tough times.
Some people have a concrete reason right off the bat, and others may need to think about it. That’s fine! Take a few minutes to drill down into why you want this burden gone. What are the benefits of paying off debt for you?
There’s no right or wrong reasoning here, but the reason should be meaningful. Additionally, if you’re paying off debt jointly with your spouse or partner, make sure you’re on the same page. You can both have your own reasons for paying off debt, but there should be one or two common threads.
#2 – How Much Can I Afford to Pay?
This is where the “realistic” part comes into play. So you want to pay off debt quickly, great. At what rate? How much per month can you afford to throw at your debt?
I’ve written before about how this can fluctuate based on your circumstance, and that’s okay. But you should at least aim to have a base amount you can pay toward your debt to get you started.
If you haven’t already, create a budget to figure out what your expenses are each month (include your debt). Add up your income, and subtract your expenses from it.
You can even use a tool like Tiller to help you automate your tracking as much as possible. Tiller connects to your bank account and loads all your information in a Google sheet so you can see where every dollar goes.
Do you have enough money left to pay extra toward your debt? Do you have enough to pay your minimum balance? Ideally, how much would you be paying per month? Figure the logistics out before moving on.
As you answer this question, make sure you have enough money saved in an emergency fund to handle surprises. Even an amount as little as $500 will help you from falling back into debt when a surprise arises.
Pick a high-yield savings account, such as Synchrony that does not have a minimum balance requirement and will pay you 1.90 percent on your cash.
If you need to find ways to free up extra money to throw at the debt, here’s a list of 35+ ways to save money each month. Pick a few and you’ll be surprised how much extra you will have to pay towards your debt.
Bringing in extra money may be the solution to pay off debt quicker. Look for a way to make money on the side and throw the money at your debt.
#3 – Why Did I Get Into Debt in the First Place?
Not all debt is equal, and there are many ways to acquire debt. Did you take out too much student loan debt? Did you run up your credit card because you couldn’t afford to pay cash for things? Did your health insurance not cover a hospital stay?
Consumer debt is a different beast than student loan or medical debt. Those are (hopefully) debts you’ll only take on a handful of times in your life. Neither is indicative of a spending problem.
Consumer debt is. You need to get to the root of why you got into debt in the first place so it doesn’t derail you from making progress toward freedom. Identify your spending weaknesses and figure out ways to avoid temptation.
If you’re paying an outrageously high interest rate on your consumer debt, it might make sense if you have no savings built up, can’t cut any more from your budget and are committed to changing your spending habits to fit what you can realistically afford and support your debt payoff journey, to consider taking out an unsecured personal loan, as in some situations they can be a great way to pay off debt.
#4 – How Do I Plan on Getting Out?
You can’t pay off debt quickly without a plan, plain and simple. Your strategy doesn’t have to be crazy, but you should have a rough outline to follow.
Your first stop is choosing how you’re going to pay off your debt. Do you have multiple debts? Do you want to pay them off smallest to largest in terms of balance? Highest to lowest interest rate? Whichever one you hate the most?
Pick a path and try to stay on it until it no longer makes sense for your situation or it ceases to be effective. I say this because life happens and things change. It’s smart to evaluate your plan from time to time.
As you look at how you plan on getting out of debt, don’t overlook the role of interest. If you’re paying off high-interest debt it can take years to become free. Often, the fastest way to pay off debt is to consolidate your debt into a lower interest rate loan.
In many cases, you can lower your interest by half, or more – allowing more of your payment to attack the debt each month.
Companies like Avant or Lending Club can help you knock down the rate and pay off your debt quicker. If that’s not an option, and you have credit card debt, consider transferring the balance to a 0% APR balance transfer credit card to kill the debt.
If you have student loans that charge higher than normal interest, you can consolidate or refinance them through SoFi. By slashing your rates you not only save money but you also become debt free quicker.
#5 – How Realistic is your Plan?
This is a short one. When you’ve decided on how you’re going to pay off debt, go back to your answer to question #2 and make sure everything aligns. If you want to pay extra toward your highest interest rate or lowest balance, do you have enough money to do so?
If you fall short, seek out ways to decrease your expenses and increase your income. You need to figure out a way to make your plan come to life.
#6 – What Other Commitments May Get in the Way?
Life has a tendency to get in the way. In the three short years I’ve been paying off my student loans, life has gotten in the way several times. I haven’t even purchased a house, given birth or been married – all three major life events that tend to hold those with student loans back.
Your situation may be different, though. Becoming a homeowner could be important to you, and you may want to put your extra money toward saving for a down payment instead of your debt.
Again, things change, but take a moment to list out the major milestones ahead for you and how they might impact your debt payoff journey. Consider how you can move your money around to make sure your plans don’t get derailed.
#7 – Who Will Support Me?
I don’t mean financially, I mean mentally. We already talked about the benefits of getting a financial accountability partner, and this is a great idea when paying off debt.
Do you have any friends or family members who might be bad influences? Those who will invite you along to a shopping outing, night out on the town or expensive restaurant? How will you cope with that?
You should focus on surrounding yourself with a supportive network of people who can get behind your goal of debt freedom and push you toward it (and help you stay away from bad financial decisions!).
#8 – Can I Forgive Myself for MY Mistakes?
This last question is where you need to get real. You will make mistakes along your journey – all of us do. It’s how you react to them that makes a difference.
Will you let a mistake get you down to the point where you give up? Or will you learn from it, put it behind you, and continue on? This can make or break your chance at debt freedom. Forgiveness and hope are necessary when paying off debt.
Did you ask yourself any of these questions before paying off debt? What are some other ways to pay off debt quickly? Do you think it’s smart to be realistic about your debt pay off before beginning?
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