You have some debt to pay down. Maybe you want to chip away at your big pile of student loans, or maybe you’ve racked up high balances on your credit cards and you need to intervene before you max them out. Whatever debts you have, your best bet for getting rid of them is to make a comprehensive repayment plan. Tackling debts without a plan will only draw out the process and turn it into a frustrating slog.
So, how can you make a debt repayment plan?
Prioritize, Prioritize, Prioritize
If you have multiple debts that need paying down, you’ll want to rank them by their risk. Tackle the highest-risk accounts first. These will have the highest interest rates, the highest balances and even the biggest penalties for defaulted payments (for instance, losing a secured asset). Prioritize the direst cases first and then move on to the low-risk debts once those options are easier to handle.
Calculate Your Payments
Use a payoff calculator to see long it will take you to tackle your debts with just the monthly minimum. Then, increase that payment amount bit-by-bit, until you get a payoff schedule that feels good (for example, a year). Write down the payment amount you need to achieve that. This is your monthly budgeting goal.
Check Your Budget
Looking at your personal budget, determine whether you have enough to make the payment amount for your desired repayment plan. If you’re coming up short, you may want to adjust some variable expenses or cut out some non-essential expenses. Doing this should help you make up the difference and get to your budgeting goal.
Be careful when adjusting your budget. You don’t want to prioritize your debt repayment over all of your other needs. And you definitely don’t want to make a really restrictive budget to help you pay off your debts even faster. This plan could backfire!
For instance, if you dedicate every extra dollar to your debt repayment, instead of putting some money toward your savings, you might not be able to afford an urgent expense that pops up. In that case, you might have to borrow funds to pay it off. You could use one of your credit cards, or you could go to a website like CreditFresh to apply for a line of credit. With an approved line of credit loan, you could request a withdrawal from your account and use the funds to resolve your emergency in a short amount of time. Afterward, you could follow a repayment plan and replenish your line of credit until it’s completely full.
As you can see, dedicating too much of your budget to your debt repayments can backfire, and even give you another repayment plan to tackle. Avoid this mistake.
Automate Those Payments
You don’t want to miss a single payment going toward your debt load. So, automate your payments through your online bank account. This will automatically transfer the funds from your checking account to your credit card accounts and loan providers.
Consider Consolidating
If you’re really struggling to pay down several debts, you can simplify your situation by consolidating them. Debt consolidation means paying down multiple outstanding debts using a larger loan. Then, your debt repayment plan will focus on one loan, which could be easier for you to manage.
If you have a lot of credit card debts, you could consolidate them with the help of a balance transfer card. A balance transfer card is a specialized credit card that allows you to transfer balances from other accounts onto it. The card comes with a period where your balance will not accumulate interest (it could be as long as 18 months), which makes it easier to make repayments.
Now you know how to start a debt repayment plan. Your next step is to actually follow through on it. Get going!
