A financial expert and bestselling author asks anyone with debt the same first question

Courtesy of Ramit SethiFinancial expert Ramit Sethi says everyone with debt should know their payoff date.

Whether it’s credit cards or student loans, debt can take a serious financial and even emotional toll.

While it may be tough to manage, the sooner you pay off your debt, the sooner you’ll be able to start building substantial wealth. But where do you start?

“Whenever you’re in debt, I always ask people: What is your debt payoff date?” financial expert Ramit Sethi told Business Insider. “No matter what, how much you owe – I met someone last weekend with $US235,000 in student loans – you should know the month and year it will be paid off. That means you have a plan. That means it’s all automatic.”

In the second edition of his bestselling book “I Will Teach You To Be Rich,” Sethi says paying off debt is one of the most important steps to successful investing, behind contributing to a 401(k) or workplace retirement account. Because a high interest rate on your debt can tack on hundreds if not thousands of dollars, it’s almost always worth it to put extra money toward paying it off before investing.

“A plan turns debt from a ‘hot’ emotional topic to a ‘cool’ maths problem,” Sethi writes. “Most of all, a plan gives you control.” Most people don’t know how much debt they owe and are just blindly paying the minimum to get by, Sethi said. Because student loans often carry much lower interest rates than credit cards, Sethi recommends stamping out the consumer debt first.

In order to establish a payoff date, Sethi suggests creating a spreadsheet listing each credit-card or student loan, total debt owned, the annual percentage rate (APR) or interest rate, and the minimum monthly payment.

From there, he said, choose either the snowball method or the avalanche method – the former prioritises paying off the smallest debts first and usually provides more of a psychological benefit, while the latter prioritises the debts with the highest interest rates.

“Bottom line: Don’t spend more than five minutes deciding. Just pick one method and do it,” Sethi said. “The goal is not to optimise your payoff method, but to get started paying off your debt.” Next, call up your bank and ask if they will reduce your interest rate, he said. It won’t work every time, but it’s always worth trying.

The final step is figuring out how much you can afford to pay each month and where it’s going to come from, such as automatic savings transfers or paycheck deductions, he said.

Once you know exactly how much you owe, your interest rate, and how much you’ll be paying every month, plug those numbers into an online calculator, or just call up your bank, to find out your payoff date.

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