Debt is part of life. Unless you have money to purchase a car, home, a college education, and other important charges in life, you’re likely going to have to take out a loan or use a credit card to finance the costs. While debt may be a common thing, for some people, debt can be a serious issue that leads to financial problems that last for years and years.
Feeling buried under your debt and don’t know how to start paying it off? While the journey isn’t the easiest, with a plan of attack and a willingness to pay off your debt, you can achieve just that. Here is a 6 step plan to get out of debt.
1. Put It On Paper
In the age of automatic payments, it’s easy to lose track of what you owe and to who. If you’re serious about tackling your debt, the first step is to take charge and figure out exactly what you owe and to which creditor.
Before making your next round of monthly payments, take the time to understand what you owe. This includes the creditor, how much you still have to pay, monthly payments, payment due date, and the interest rate. With these details, you can better organize your payments and determine which debt should be tackled first.
2. Make a Budget
Once you know how much you must put towards your debt each month, the next step is to factor in all of the other monetary expenses that you face. From childcare costs to clothing to groceries, chances are there are plenty of monthly costs that you’re also responsible for. By combining these costs with your monthly debt payments, you can get a clear idea of how much money you make versus how much goes towards bills.
With a thorough budget you can also figure out where you can cut costs so that you can put more money towards paying off your debt. In turn you can use a debt payoff planner to create a schedule for paying off your credit cards and loans. By using a planner, you can see where your money is going and how much you can expect to pay towards your debt each month.
3. Prioritize Payments
After you have a thorough understanding of how much debt you owe to which creditors, you’ll want to prioritize your payments. While you obviously don’t want to skip payments on any of your debt, you likely have a certain loan or credit card that’s worth paying off before other debt.
The most effective method to paying down your debt is to pay off the loan or credit card with the highest interest rate. Paying only the minimum balance due costs you a lot of money in interest. To minimize the amount of interest you pay, be sure to put as much money towards your highest interest debt first. This will allow you to pay it off quicker and put more money towards the principal payment.
As you pay off your highest interest rate debt, you can move to the next highest rate. Eventually you’ll find that your debt is under control and you can comfortable work towards being debt free for good.
4. Consider Debt Consolidation
Dealing with multiple debts from multiple lenders can be a big hassle. To make paying off your debt a little easier, consider debt consolidation. This allows you to combine all of your debts into a single loan. With one monthly payment, it’s much easier to manage your debt, especially since you don’t have to worry about varying interest rates and other factors.
When consolidating your debt, be sure that the new loan total is one that you can afford to pay. Consolidating your debt, only to be left with a huge monthly payment, can leave you even more strapped for cash.
5. Watch Your Spending Habits
More often than not, personal spending habits and lifestyle choices can lead to ever-growing debt. If you’re serious about taking charge of your finances, you’ll want to take a serious look at your spending habits. Try to avoid making impulse purchases, which can ruin your budget and set you back on your plan to pay off your debt.
By making healthy spending choices, it’s much easier to stick to your financial goals.
6. Increase Your Income
Increasing your income means being able to put more money towards your debt. While you may not have the time to pick up a second job, there are all sorts of other ways to put more money and your pocket. Try making money by:
- Selling unwanted items for cash
- Offering odd jobs like babysitting or lawn care
- Taking online surveys
- Reviewing products for cash
The more money you’re able to make, the more you can put towards paying off your debt and getting rid of the financial burden.
After being in debt for years, it can seem impossible to overcome the burden. By creating a plan and sticking to it, you can slowly but surely work your way to a debt free life. Follow these 6 steps and you can take control of your finances and your debt. Here’s to being debt free!
If you have any tips or advice that could help someone get out of debt, leave a comment with your thoughts in the section below.