Yes, Even Artists Need To Pay Off Debt
By Literally Broke
The average American millennial is $78,396.00 in debt.
Let that number sink in.
...It’s crazy, right?
That total might seem outrageous and on a moral level it is. But once you crunch the numbers, it’s easy to see why our generation is in so much debt.
After you factor in student loans (65% of recent college grads have em'), stagnant wages, and privatized medicine, you’ve got the perfect recipe for a lack of economic opportunity. .
But it doesn’t have to be that way! Armed with a budget and a debt payoff plan, you can become debt free. You (yes you) can create a debt pay off plan that works with these three simple steps:
Step One: Find Out How Much Debt You Owe
I’m not gonna lie, this step stings like your first bikini wax, so grab a glass of wine(okay, a bottle) and set the mood with your favorite Trader Joe’s candle.
Are you a pen and paper gal or more of a spreadsheet Susie? Whatever your list making du jour is, pull up a fresh sheet and create three columns. Label these:
Name
Current Balance
Minimum Payment
Next, pull up every single one of your statements, whether they be student loans or credit card bills. We’ll go through each of these bills one-by one.
List out your debts using the following method:
The name of the company or the person to whom you owe on the left side of the list
Your current balance in the middle column
And, last but not least, the absolute minimum payment this debt requires to keep you current
Finally, grab a calculator (or just use spreadsheet magic) to calculate your debt total.
Circle this number. This number is what you owe.
Overwhelming? Of course! And that’s totally understandable. This moment can be a rude awakening — I know it was for me.
But the hardest part is over (remember my bikini wax metaphor)? Now it’s time for the good stuff.
Step Two: Build An Emergency Fund
Okay, I know I buried the lede here, but if you’re serious about getting your financial shit together, you need an emergency fund.
Why is this step 2? Because you need to know where you’re starting before you can know where you’re going.
At Literally Broke we strongly suggest building a 3-month emergency fund before paying off debt.
While some personal finance experts suggest you pay off debt first, that advice is simply dangerous.
As the Coronavirus pandemic has illustrated devastatingly , regular income can disappear overnight. If it does, you don’t want to be caught with your pants down.
So how do you create an emergency fund? It’s two steps:
Create a high-interest online savings account (check out my favorite, Ally)
Begin siphoning money from each paycheck into this fund (I recommend 10% of your take-home pay).
But I want to pay off my debt quickly!
Listen, I’m not here to tell you what you can and can’t do. I’m just sayin’ it’s better to be safe than sorry.
Pay the minimums on your debts until your three-month emergency fund is fully funded.
Why, you may ask?
Because having an emergency fund will keep you from accumulating more debt in the case of god-knows-whats. It also gives you peace of mind when shit hits the fan, because (and this is the hard truth) shit always hits the fan.
Step Three: Pay Off Debt Using The Debt Snowball
Welcome to the Hallmark Christmas movie stage of paying off debt! This is the part when you leave the big city, fall in love, and rediscover the meaning of Christmas (spoiler alert: it’s debt).
Okay, in all seriousness, here’s how you pay off debt using the debt snowball:
List out all your debts in order from smallest to largest.
Pay the minimum on all of your debts.
Put all your extra cash (that’s not already in your emergency fund, obvi) toward your smallest debt.
When you finish paying off debt #1 roll the amount you were paying down to debt #2.
As you pay off more debt, your snowball will increase, and you’ll be able to pay off more and more.
Curious how long it would take you to be debt free using this strategy? Check out NerdWallet’s debt snowball calculator.
This video has a quick explainer in case you’re confused:
The Harvard Business Review found that the debt snowball is the best method for paying off credit card debt.
Why? Because it gives us a steady dose of psychological wins.
In sum, you can think of the debt snowball as the micro-dosing of personal finance. Have a happy trip!