How to Make a Plan to Pay Off Debt
If you’re struggling with debt, it can sometimes seem overwhelming and even impossible to deal with. Debt is difficult to pay down because, unless you pay it off in full, interest charges add up quickly. This is especially true for debts like credit cards, which often have very high interest rates. If you have a large amount of debt, and you’re only able to make small payments each month, it will take you a very long time to become debt-free and you’ll spend a lot of money in the process.
Living debt-free is possible, but you’ll need to create a plan to make it happen. And, once you have your plan, you’ll need to make sure you stick with it. Here are some tips that could help you design a strategy to pay off your debt.
Know What You’re Dealing With
You can’t create a debt repayment plan if you don’t fully understand your debt. Start by identifying every debt you owe. Once you have a list of your debts, write down how much you owe on each one, the interest rate, the minimum payment due, and any other relevant details.
A lot of people who struggle with debt find themselves avoiding their bills and not opening their statements. Avoiding your debt may keep it out of your mind (temporarily) but it doesn’t solve the problem. In fact, ignoring your debts only make them worse as interest continues to add up.
Once you’ve really looked into your debt and understand your position, you can start planning.
Review Your Budget
You’ll need to look at your budget to figure out how much you can afford to pay off while still meeting the rest of your financial commitments. If you don’t have a budget, you’ll need to make one. Start by writing down everything you spend money on. Looking at your previous bank and credit card statements can help you with many of the details. Once you know how much you spend, compare this to how much you earn. If you’re spending more each month than you’re earning, you’ll need to make cuts.
You’ll also need to make cuts if you want to successfully pay off your debt more quickly. Look at where your money is going. Is it all going to necessities or are you spending it on things you could do without? If there are areas where you can reduce your spending, you can make cuts then put this money towards debt repayment and get out of debt faster.
Once you know how much you can afford to put towards debt repayment each month, you can create a strategy to become debt-free.
Create a Strategy
There are many different debt repayment strategies and finding the right one for you is important. Some people choose to focus on paying the debts with the highest interest rates first. This strategy can save you money as your most expensive debts will be paid off more quickly. Other people will instead put their efforts toward paying the debts with the lowest balance. This can keep you motivated as individual debts will disappear more quickly.
Whatever method you choose, make sure to determine how much you can pay each month, record your debts as part of your budget, and pay your bills on time. This will help you avoid penalties that can make it tougher to live a debt-free life.
You’ll need to make sure you’re tracking your spending, so you know if you’re sticking to your budget. Whenever you make a purchase, take a note of it somehow. If you find that you’re spending more than you should, you’ll need to adjust what you’re doing so you don’t run out of money before you’ve met all your financial commitments.
Talk to Creditors
You may be tempted to avoid your creditors if you’re having trouble with your debt, but speaking with them instead could be a good idea that can help make paying off debt a bit easier.
Give your creditors a call and let them know that you’re having trouble making your payments. Let them know what you’re able to afford and see if they’re willing to work with you. They aren’t obligated to help, but if you’re honest and straightforward, they might reduce your interest rate or give you more time to pay them back.
If you’ve done everything you can, and you’re still not able to come up with a plan to pay off your debt and still afford your expenses, you might want to speak with a Licensed Insolvency Trustee. There are many different options available to people who are struggling with debt and a licensed professional can help you understand them and figure out which is right for you.