Debt repayment can be a time-consuming and frustrating project. One way to reduce the stress is to make a debt repayment plan, and then do all that you can to stick to it. But how can you make an effective debt repayment plan? Here are 6 easy steps to follow:
1. List Your Debts
The first step to forming an efficient repayment plan is taking stock of what exactly you owe, and to whom. This list of your debts should include important information for each debt, like the minimum payment amount, the interest rate, and the total balance due. Don't forget to include credit card bills, personal loans, student loans, your mortgage, and even money you owe to family and friends.
2. Prioritize Your Debts
Now that you've numbered all of your debts, and funneled all the relevant information into one place, it's time to start ranking them according to order of importance. In other words, which debts do you want to pay off first?
There are a couple of methods that you can use in this prioritization step. These are known as the avalanche method (paying off the debts with the highest interest rates first) and the snowball method (paying off the smallest debts first). The avalanche method will save you the most money in the long run, but the snowball method has helped many debtors stay motivated to stick to their plan.
3. Find Extra Money
Look for ways that you can budget more money to go towards repaying your debts. You may have to look for ways to reduce current bills, seek out more hours at work, or look for supplemental sources of income. Whatever the case, a little self-discipline and creativity can go a long way in this process.
4. Take it One Debt at a Time
Don't try to bite off more than you can chew. Focus on paying off the first debt on your list as fast as possible. In the meantime, pay the minimum amount on all the other debts. This will allow you to pay off your debts more quickly, since more money will go towards your debts' principal balance as opposed to interest. Continue to do this with each consecutive debt on your list.
5. Consider a Debt Consolidation Loan
A debt consolidation loan is a loan that allows you to pay off a number of smaller debts by consolidating them into one larger debt. This is often beneficial for debtors, as debt consolidation loans frequently come with lower interest rates or lower monthly payments, compared to the total of multiple debts.
6. Continue to Save
An emergency fund is an important asset to have. Even while repaying your debts, try to set aside some money each month for unexpected events that could arise. Make this a habit, so that even after you pay off all of your debts, you'll still have a healthy nest egg for the future.
When it comes to debt repayment, there may not be any easy answers, or shortcuts to solvency. However, with some planning and perseverance, you can implement an effective debt repayment plan that will help you achieve financial stability and peace of mind.