Getting out of Debt

A budget is nothing more (or less!) than a plan for your money. Paying off your debts is a plan within that plan. If you have multiple debts, the order in which you tackle them makes a big difference. 

YNAB  recommends a debt payoff plan that will prioritize freeing up cash flow. Freeing cash flow will help you fund True Expenses and  savings categories, which is an important step toward avoiding future debt. If you have  enough in savings categories, you don't have to go back into debt when unexpected expenses come up as you follow your plan.Freeing up cash flow will also increase the funds you have available to pay toward your next debt!  

Here are the steps to get out of debt with YNAB:

1
List your debts.

Make sure you have an account and a category for each of your debts in YNAB. For credit cards, YNAB will create a Credit Card Payment category for each account. For loans, choose an existing category or create a new one when you set up each Loan account.

2
Choose a focus. 
Select your debt with the lowest remaining balance. This will be your focus, where you direct extra dollars as you budget!

What about high interest debts?

Paying off the highest interest credit card or loan might seem like the place to start. It's more important though, to free up cash flow, and completely getting rid of one debt payment is the way to do this. The quick win is a nice shot of motivation, too!

3
Set a Target for your focus debt.

If your focus debt is a credit card, choose a Pay Off Balance by Date Target (here's how on mobile!) which will tell you exactly how much to assign each month to pay off your credit card debt by a certain date. The Target amount will adjust automatically if you are making slower or faster progress than your original plan!

If your focus debt is a loan, create a Debt Payment Target and choose a payoff date. YNAB will automatically calculate the monthly payment for you!

4
Set Targets for your other debts.

For all other credit cards and loans, you're going to make just your minimum payment while tackling your focus debt. For credit cards, set a Pay Specific Amount Each Month target in the Credit Card Payment category to make sure you're prepared for that minimum monthly payment. For Loan accounts, enter your minimum payment as the Debt Payment Target amount.

5
Celebrate and choose a new focus.
When that first debt is paid off, stop and celebrate! 🥳 You've improved your cash flow significantly! Now it's time to decide how many of those dollars will go towards your next focus debt. The more you can afford to send there, the faster you'll be completely out of debt.
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