Having a large amount of debt can be overwhelming. It can also be difficult to take that first step. Once you come up with a plan for repayment, your financial obligations won’t seem so intimidating. Use these manageable steps to start tackling your debt today.
Create a List
The first step is to gather all the facts about your current debts so you can come up with a big-picture plan for repayment. List the balance, minimum payment, and interest rate for each one.
From there, you need to decide which debts to prioritize. You can funnel extra money toward debts with the highest interest rates to minimize extra interest accumulating on a loan or credit card. Some people prefer to prioritize the smallest debts first since paying them off entirely gives them a boost of motivation.
Look at Repayment Options
There may be some wiggle room when it comes to how you’ll pay off each debt on your list. For example, if you have federal student loans, you could qualify for income-based repayment plans or loan forgiveness. Additionally, you can consolidate your debt by refinancing your student loans, thus paying a more convenient personal loan instead. Transferring a credit card balance to a new card with a zero-interest offer could be a good option if high interest rates are holding you back from paying it off faster.
If you have tax debt, consider having a professional intervene on your behalf to work out an easier arrangement for repayment. For credit cards, you may also want to look into debt settlement, which allows you to pay a lump sum that’s less than your total balance to resolve the debt.
Make Extra Money
Just making the minimum payments on your debts won’t get you out of debt anytime soon. If you’re serious about repayment, you need to come up with extra cash that can be directed toward your debts on top of the minimums.
Making a budget can help you look for areas where you could reduce your expenses. If you’re already on a tight budget, look for a way to make additional income, such as selling some of your possessions or taking on a part-time job. Don’t forget to apply all bonus cash, such as gifts, tax returns, or job bonuses, to your debt payments, too.
Keep the Momentum Going
Once you do pay off a debt, direct that monthly payment to the next debt on your list to maintain momentum. You’ll pay off your debt much faster when you use this strategy.
For example, imagine that you have three debts you’re working to repay: a personal loan, a student loan, and a credit card debt. Each month, you pay $200 toward the student loan, $100 for the credit card, and $50 for the personal loan. Your personal loan is paid off first. Instead of pocketing the extra $50 per month, you put that money toward the loan with the next highest interest rate. You’re paying the same amount each month, but now $200 goes to the student loan and $150 for the credit card, allowing you to pay it off even faster.
Your goal of debt repayment is achievable. Reach financial freedom by following these easy steps.