Bucket list destinations, travel planning for that next trip, family vacations, quitting your job to travel – we all have our travel dreams and goals.
Since we love all travel let’s talk about how to get out of debt. But why are we talking about how to get out of debt on a travel site?
Because I’ve spent the last 18 years traveling around the US and Europe. And I also have a degree in accounting and created a budget spreadsheet that would make a CPA’s head spin.
I have a simple motto – travel passionately, spend wisely, experience more.
You can’t do any of these if you are worried about finances, don’t have enough money to travel, or don’t understand how to manage the money you have.
No matter where you go in the world or how long you will be gone, managing your money is essential. By learning how to get out of debt, you will have the freedom to do more things in life, get rid of stress, and pursue your travel dreams.
Why Money and Travel Matter
For family trips and vacations, money and time are important factors when planning that next trip.
For those who want to take a round the world trip or spend months traveling, their focus is a little different than the typical family, couple, or solo traveler who has limited time for trips and vacations.
There are some great money saving tips for world travel that can help you save money for travel.
But if money is tight and vacation time is limited, how can you travel if you are deep in debt?
While many travelers may not think that travel and how to get out of debt go together, learning how to pay off your debt will make life a lot easier.
As a traveler, now is the time to get out of debt.
5 Tips to Get Out of Debt So You Can Travel More
1. Create a Budget
You can’t spend more money than you have. In order to monitor your spending habits, create a budget so you can see how your money is being spent.
Spending falls into three categories:
- Fixed Expenses (rent or mortgage, utilities, cable, cell phone, or any expense you pay each month that you can’t change for a period of time).
- Variable Expenses (dining, entertainment, groceries).
- Debt Expenses (credit cards, loans).
Set aside money in your budget for the fixed expenses. These are things that you must pay every month.
In the next category, budget for debt expenses (see more about debt below).
Finally, use the remaining money to budget for variable expenses. Set aside money for savings as well (especially if you want to travel).
If your spending exceeds your income, then you will need to cut back on those other expenses or eliminate fixed expense items (i.e. get rid of cable, change your cell phone plan).
When you are done with your budget, make sure you have $100 left that isn’t allocated to anything.
2. No More Credit Card Spending
Credit cards aren’t bad – if you know how to use them.
The problem for most people is that they don’t know how to manage their money wisely. Many people get out of control with their credit card spending. This is where spending exceeds income and people go into debt.
For most people, their biggest struggles with debt are credit cards. Until you begin to pay off your current credit card debts and get your spending under control with your budget, don’t let your credit card be a temptation.
Stop using them until you pay off your balances.
3. Organize Your Debts
Before you get out of debt, you need to know how much you have.
Get your latest credit card statements, loan statements, outstanding bills, and mortgage statements. Add up the total to see how much you owe. While it may be difficult to see huge numbers, this is your first step if you want to get out of debt.
4. Pay Off Your Debts in Order – smallest to largest
This is the most important step if you want to get out of debt. After getting a total of your debts, order them from smallest to largest.
With the extra $100 in your budget, add this amount plus your minimum payment to your smallest debt. Continue to pay this amount each month until the smallest debt is paid off. After that debt is paid off, roll that amount over to your next debt as your payment.
Here’s an example:
If you pay off a $1,000 credit card balance with monthly $125 payments each month, add that $125 payment to your next payment to pay off that $2000 loan. If your minimum payment is $50, you will pay $175 each month – without any impact on your current budget.
If you paid the minimum payment of $25 and $50 on the loans with 18% interest rate, you would pay off the $3,000 in 24 years paying over $3300 in interest.
By paying the $125 on the first loan and rolling that amount over to the $2,000 loan ($175 payment), you will pay off both loans in a total of 21 months with total interest paid of $508 – a savings of $2800 and 22 years.
While understanding this can be a little difficult for some people, I’ve put together a debt calculator spreadsheet where you can input your balances, interest rates, and organize your debts to help you get out of debt fast.
5. Be Patient and Disciplined: getting out of debt takes time
Following this debt strategy by paying down your debts and rolling over your payments to your next debt will save you years and money.
Let’s be honest – it took years to accumulate that debt. Car loans, student loans, credit card spending, shopping, eating out – it didn’t happen overnight.
If you want to get out of debt, it will take discipline and perseverance.
Many others have strategies and plans for how to get out of debt (Dave Ramsey is a good example). If you need help on how to get out of debt, seek the advice of a financial professional.
Read Dave’s book: The Total Money Makeover: A proven plan for financial fitness
Money Lessons from Travel
Travel is much more than just the destination, a bunch of photos, or some items to be checked off a bucket list.
I’ve learned a lot of life lessons from traveling. There’s no reason travel can’t teach us important lessons about money.
For many of us, it takes years to achieve our travel dreams or visit that dream destination. The same is true with financial freedom.
Remember that getting out of debt affects so much more of your life than travel. Paying off your debt gives you the freedom to travel as well as live. Get rid of the stress, travel, and develop better habits for managing your money.
If you want to get out of debt and travel more, there’s no better time to start than now.
Tell Us:
How have you gotten out of debt?
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We’re definitely working on getting out of debt. Our main way is increasing our income as much as we can!
I hope this is helpful. Many people use this strategy to get out of debt. There’s even some more detailed tips for paying off your mortgage early as well. However, people should note we are not financial advisors – just sharing good tips that have worked for a lot of people.
Thanks for letting me share 🙂
This is a good, helpful, article about an important topic. We, too, discuss financial management topics on our travel site because saving and paying for travel is a critical prerequisite to actually traveling.
If I were to make a suggestion, it would be to change item number 4 to read “Pay Off Your Debts in Order – Highest Interest Rate to Lowest.” Depending on the nature of the debts (credit card, auto loan, student loan, home mortgage, etc.) interest charges could range from 4% to 25% or higher. Paying down the high cost loans first can substantially reduce future interest expenses. Those savings can be used to accelerate your debt reduction faster than would be possible if you paid off a lower cost debt first.
Brian, that was definitely a consideration. However, you have to take into account the balance on the credit card or loan as well. For example:
Let’s say you have a loan for $500 at 7% and another loan at $480 at 8%. By your logic, you should pay off the 8% one first. However, here are the balances of the two loans after 30 days and 5 years.
30 days
$500 at 7% – 502.88
$480 at 8% – 483.17
5 years
$500 at 7% – 701.28
$480 at 8% – 705.28
It would actually take 5 years before the 8% loan would cost you more than the 7% loan. In my example, I state you should order your amounts from least to greatest. In this case, pay off the $480 one first, then then $500. In the short term, paying off the $500 one at 7% would save you more money. So both of our methods would be wrong.
However, you can choose to do it however you want. The idea is to add on to payments as loans get paid off.
I think this really depends on your situation, your loan amount, the amount of debt you have. The higher interest rate doesn’t always cost you more money – it just depends on a number of factors.
For simplicity purposes, it may be easier for people in big debt to tackle smaller items first then the larger ones. Yes, it may cost them a little more in interest but maybe this is a mental exercise in disciplining yourself to get out of debt in steps without being too overwhelmed by the amounts. For some people, just the feeling of paying off a $500 loan first may be easier than doing a $5,000 loan first.
Hi Jeremy,
Thanks for the detailed reply, although we still disagree. Your example compares two very similar loans so the differences are minor, but even here we can show that paying down the higher cost one deleverages you faster.
Assume, as you did, that someone has a $500, 7% loan and a $480, 8% loan outstanding, for a total loan balance of $980. Further assume they have $100 available at the first of the year to use for debt reduction and won
Somehow that comment got cut off. Here it is again . . .
Assume, as you did, that someone has a $500, 7% loan and a $480, 8% loan outstanding, for a total loan balance of $980. Further assume they have $100 available at the first of the year to use for debt reduction and won’t make another loan payment until the first of next year. If they repay $100 of the 8% loan and $0 on the 7% loan his total debt outstanding on the 1st of next year will be $945.60 [($500 – $100) * 1.08 + $480 * 1.07]. If, instead, he repays $0 of the 8% loan and $100 of the 7% loan his total debt outstanding at the beginning of next year will be $946.60 [$500 * 1.08 + ($480 – $100) * 1.07].
So by paying the lower interest loan first, he ends up owing more money after incurring a year of interest charges. That dollar may not sound like much, but the difference compounds over time. If he keeps prioritizing the 7% loan until it’s repaid, it will take him a full year longer to repay both loans (16 years instead of 15) than it would if he repaid the 8% loan first. Over that time, he also ends up paying an additional $104 in interest costs.
And while I understand the psychic benefits of seeing progress on your debt reduction strategy, the right thing for people to focus on is total debt outstanding – which will be lower if payments are prioritized by interest cost.
Brian, one more comment on this. For someone in massive debt, they can be overwhelmed with it. So this allows them to start small and feel like they accomplished something and are moving towards their goal. So while paying off a $5000 at 18% may make more financial sense than paying off $500 at 15%, paying off the $500 one first is a HUGE first step and easier to accomplish for more people.
And with the idea of adding payments to the next one, they can still save money as they do this.
Although I understand the logic of paying off debt based on the highest interest rate first, for my fiance and I, paying our debt off using the lowest to highest owed amount, as you have suggested, works better. It feels so great to completely pay off of a card, and it’s a good motivator to cross one off the list and then tackle the next one. Baby steps. At the end of the day, each individual has to decide which method will work for them. Either way, as long as you are consistent about paying off your debt you will be that much closer to reaching your goals.
Thanks Jen. Whether you use the interest rate method or order the amounts from least to greatest, the idea is to pay off debt quickly. I don’t mind which way people order their debts. The same principle applies to both – keep adding payments to the next one to save money on interest and pay off the debt quickly.
Congrats on your freedom! 🙂
Brian, I understand what you are saying and I agree with you. That is one reason why I created the spreadsheet (not sure if you have taken a look at that). This allows people to see the total cost of their debt over 1 month and 5 years which gives people a little more information and personal choice on how they choose to order their debts.
So while I didn’t state that people should do it by interest rate, those who understand how interest works (or want to understand) can see it in detail and structure a plan that works for them.
Great discussion guys! Very helpful for readers to consider. I think it is important that people find a way to pay down debt as quick as they can in the best way they can.
Fantastic advice!! Thank you both
I agree about ordering paying off debts from largest interest rate to smallest!
Also, for those with mortgages… If you work for a company that pays you every other Friday, divide your monthly mortgage payment in half, and budget to pay that amount every pay day – by the end of each year you’ll have made an extra full mortgage payment, and will pay it off faster!
Whitney, I do agree with you about the interest rates. However, see my response to Brian above for more details on that.
My suggestions for getting out of debt are as much psychological as they are financial. For people who have massive amounts of debt or are really struggling with this, paying off a small debt first can be a huge feeling of satisfaction giving them the confidence they can do this.
I have no problem with people doing it with interest rates as well. It really depends on the size of your loan and other factors. If you can do it by interest rate, go for it.
As for mortgages, I completely agree about that. However, tackling the issue of mortgages was too much to handle in this topic as well. I have some tips on that too but that seemed like it should be another post. I didn’t want to overwhelm people.
Yes, there are lots of great tips on mortgages. So much detail to go into on that one – pay your mortgage twice a month, pay an extra amount each month, do a 15 year loan rather than a 30. So many options for paying your mortgage. Biggest potential savings on interest of any debt people have.
I disagree with the elimination of the credit cards…maybe I am speaking as someone who has only had credit card debt that was paid off quickly twice in my life. Both times, they were planned for as a short term loan that could not be avoided and had long term benefits!
Given so many cc programs out there, use a card that either gives cash back, groceries or travel benefits. If you can’t manage your card…cut the limit and only use for your fixed costs. Regardless, you have to pay electricity and heat. Just make sure you automatically pay down the card to reap the rewards and not accumulate any more debt.
I agree with Whitney above about making bimonthly payments. That can apply to the credit card too! You are paying interest every day that you have debt – have a spare 20 bucks – throw it on your debt. It is crazy to think that a splurge on the card costs so much when the interest accumulates at 28% – I may not be an accountant or great with math, but I do know that paying for a splurge for months to years due to only paying minimum payments does not make good financial sense! I would rather be spending that money on travel than making the banks and credit cards rich!
Happy travels.
Anita Mac, thanks for your comments on credit cards. I COMPLETELY agree with you.
However, I wanted to point out the first sentence in that section:
Credit cards aren’t bad – if you know how to use them.
I have 3 credit cards that I regular use. I’ve spent tens of thousands of dollars on them. However, I also pay off the balance each month. I actually have no idea what my interest rate is. Why? Because I don’t care – I don’t ever carry a balance!
I use credit cards for the reason you mention – miles, points, cash back, etc. I’ve gotten into some heated discussions with people about CCs and flat out told people they aren’t bad. CCs aren’t the problem – it’s the lack of discipline and ability to live within your means.
For many people in debt, CCs have been their biggest issue. They can’t control their spending. Getting on a budget and eliminating wasteful spending is the key. You have to remember the audience here – these are people that have massive debt, not the ones like us who pay off our balances.
That is why I suggested that people who have large debts, especially with CCs, stop using them until their debt is under control. CCs aren’t bad at all but if you are already in debt, it probably shows you have a problem with spending. I am giving tips to develop better habits and control while eliminating temptation for people that are currently in trouble.
As with the interest stuff, the idea is to help people manage their debt. I am giving people a system for helping them pay it off in steps. Many people are so overwhelmed they don’t know where to start. For people who already understand interest rates and how to get out of debt, they don’t need these tips anyways 🙂
Remember, getting out of debt is as much a psychological boost and giving people the confidence to do it in small steps as much as it is financial. 🙂
Yes I completely agree! I’ve heard people say “I don’t have money so I’m going to use my credit card” or “I’m not spending money, I’m using my credit card” & I’m bewildered at their stupidity! I haven’t gotten a credit card yet, but I would only use it when I have money to pat it off! I would use it for quick loans like Anita did and for points, miles, cash back, and to make my credit good like you do Jeremy.
If people understood that a credit card can be no different than cash, maybe people would use them wisely. A credit card should not be used if you don’t have the money to pay it off. I think many people have problems with the “buy now, pay later” idea with credit cards without a plan for the pay later part.
Great post Jeremy. Really good advice to help people get out of debt so they can free their finances up for travel. Money is the biggest obstacle for a lot of people but there is always a way out if they really want it. Its sad that people let a little thing like money stop them from living their dreams! Anything is possible if you want it enough 🙂
Thanks Nicole. I think the idea is simple – learning how to manage your resources so that you can spend your money doing the things you really want. People spent money on stuff and get into debt because they want stuff. However, if you realize there is something you want more, this will help you get out of debt so you can allocate your money to doing the things you love.
Getting out of debt isn’t easy and it takes time. However, I hope that people realize it can be done – one small step at a time.
Hi, I have been reading your tips to get out of debt and would love to be able to do this. I am a 68 year old widow and I live on a pretty fixed income. Social Security and Pension from my job of 31 years from which I retired 18 years ago. I own my own home, no mortgage. I also live in the Northeast and winter expenses are brutal. Heating oil is out of sight, snow removal is costly, gas prices are on the rise yet again (don’t have a clue as to why) and my electric bill is also out of sight..everything going up except my income. In January my SS went up by a measly $11.00 per month because Medicare Premium increased so I get about $122.00 more a year. Wow, can do a lot with that. I don’t see how I could ever pay down any debt that I have. My one and only credit card has a balance of about $3600.00 at the moment with a $4000 credit line. This I would love to pay off but do not see any way to do this. Would appreciate any help you can give me. Thank you.
Fran, do you have a budget for your income and expenses? If not, the link to how to create a budget spreadsheet shows you how to do it and gives you one you can download.
I understand winter expenses can be a bit much. However, do you have more money during other times of the year? Even if you have just $25 or $50 extra each month, start using that to pay towards your credit card and credit line. Since both are about the same amount, pay the one with the higher interest rate off first.
I know it won’t seem like much but an extra $25 to $50 on your payment, even if you are only paying the minimum now, will help you pay it off faster saving you lots of interest.
Also, see if there are other ways you can cut expenses. I realize money may be tight but if you get any extra money, set aside at least some of it and add it to your payments, even making extra payments if you can.
If you don’t mind me asking, what is your minimum payment on your credit card and credit line? Do you have any extra money each month that you can apply to at least one of your payments? Are you currently making the minimum payments each month? If you give me that information, we can figure out how quickly you can pay these off with the money you have.
I absolutely love this! So many people state lack of financial means as their main reason not to travel. In fact, I was one of them!
It wasn’t until I realized that it was actually feasible that my eyes were opened to all the possibilities.
Thanks Andrea! Without a doubt, money is a factor when traveling. However, learning to manage money can be a useful skill much like travel tips. Once we learn how to manage the resources we have, the more opportunities that we will have to travel and do other things that we enjoy.
I know some of my friends who postpone their travel goals just because they still need to settle some debts.
As for me, I still have yet to save some more as I’m not comfortable to start traveling while I still have some more debts to pay.
Thanks for sharing your tips. This inspires me to really dedicate some of my savings to start traveling soon.
Best of luck to you Deb! Paying off debts, you can start small. Just realize that by compounding (adding money to your debt and rolling it over to the next one), you can be free from debt much quicker than you thought.
It doesn’t mean it’s an easy thing but learning how is the first step. Best of luck and hope you get the chance to travel more!
Nice article! I have in fact recently finished off clearing my debts (end of Dec 2012) and for the first time in my adult life i am debt free which is a fantastic feeling.
It took me a good 6 years and a lot of sacrifices, but the end goal of heading off travelling was what actually kept me going!
Now saving for and planning a full RTW trip from September for a year and it can not come soon enough!!
That is awesome Rob! Congrats! So glad that you got everything paid off. Did you follow any of these principles or did you have your own plan for doing this?
Do you have any tips you could share from your experiences?
Good luck planning your trip. I know how great that feeling of being debt free feels. Congrats on the freedom and good luck on your travels!
It definitely takes time! Paying off $70,000 worth of credit card debt after divorce. Only$10,000 more to go and I’m debt free! Took four years!
You’re on the way Jo! Great job paying off the $60K. How did you do it? Did you use any of the tips above to pay it off? $60K in 4 years is a lot – nicely done!
We are getting ready to travel the world and have been spending a lot of our time focused on money. One of the biggest challenges we had to deal with was my student loans. We would love to wait and travel after they are paid off, but that will be 7 years from now and we just feel like now is the right time to take this trip. So we have decided to put the loans into forbearance. It’s not an awesome option, since they will still be collecting interest, but we couldnt afford to take this trip and continue making the $700/month payments at the same time. I realize travelers from other countries dont have to worry about this kind of debt, but as Americans, most of us have student loans that follow us for 10 years.
Hi Jeremy
I loved reading your blog post and also the discussions with everyone afterwards. It really does help.
My hubby and I travelled quite extensively 20 years ago and are now ready to do it again, however we have 2 cats that are 15 years old and we just can’t get them adopted out, we love them too much! So in the meantime we are concentrating on getting rid of debt (the only debt we have is our mortgage) so that we’ll be ready.
We’ve always been budgeters (but not always good at it!) and the thing I find hardest is that my husband doesn’t have a regular income due to him being self employed.
Have you got any tips on managing this? It’s so easy when you know what you’re earning from week to week – just pop that sum in the budget spreadsheet and away we go. But when you don’t know from one week to the next whether there will be work or whether you’ll get rained off…. I’m sure you know what I mean.
Any help would be GREATLY appreciated!
Thanks again Jeremy.
I thought I’d share my article here as a sort of devils advocate. I recently got back from a month away in Europe and I’d say depending on your career choice and creativity, traveling is worth debt. Of course, it does depend on ones circumstance, interests, long-term goals, etc. Thanks for the post ^_^.
Cheers,
Brandon
http://immortalinquiry.hubpages.com/hub/Travel-is-worth-the-debt
Yeah, on my first trip overseas I took out a loan. It was totally worth it but I had a very strict management plan in place that I more than followed. You’ve got to be really careful using this as a strategy. It can work but it can also get you in a lot of trouble which might not be worth it eventually. Although I think getting into debt for travel is better than for a brand new car!
Thanks for the great advice!
This post might be over two years old, but I’m so glad I stumbled upon it. I’m in a period of serious debt consolidation and repayment, and it’s nice to be reminded of some of the staple rules. The budget spreadsheet is incredibly helpful too! I keep track of everything, but I’m not Excel savvy, and I like seeing how other people lay out their finances and seeing where I can improve upon my own. Thank you!
Great advice, thank you for putting this together to help people!
Want to get out of debt
Great tips! Having an incentive like a wonderful trip also makes it easier to save!
Thanks for a fantastic article to inspire people to find a way to travel!!
Natalie, The Educational Tourist
wow
nice post. Thanks for the tips !
I’m working on it. Thanks for the tips. The reason why I didn’t travel much is because I’m afraid getting more debts. Now, I can manage my money in a very convenient way.
I’ve JUST paid off the last of my debt-SOOO happy! I have put together a list of things I did here- http://lifeasabutterfly.com/how-i-went-from-verging-on-bankruptcy-to-being-in-credit-in-three-years-and-travel-was-to-blame/
Congrats Hayley! Love your story and site 🙂
This site, and this specific post, has been a great resource for me. Thank you! I’m happy to say that I’m debt free and have been saving money to leave for my travel adventures in 2017. Here’s how I got there: http://www.emotionaltraveler.com/five-steps-to-get-out-of-debt/
I have gotten out of debt simply by avoiding debt. This is a wonderful post, Jeremy.
I am having a student loan debt and I am crazy to pay my debt and can travel quietly.
P.S .: I love your articles!