Your 4 Step Guide to Paying Off DebtPosted by EndThrive on May 1st, 2019 As a Financial Advisor for EndThrive, I always tell people:
When you're trying to pay off debt, you have to have a plan.
Because just blindly making the minimum payments is not a good idea.
But trying to figure out the best way to get rid of your debt can be overwhelming. Do I start with the smallest balance or largest balance? What about the interest rates?
Look, here's the deal:
A debt payoff plan includes knowing what you owe and the order in which you owe it. You need to know those two things if you want to succeed.
Because if you can get these two things in order, you're twice as likely to become debt-free. So let's get into the action steps:
Step 1: Make a List of Your DebtThis is a hard first step. Often times, our debt gives us anxiety and nerves. The last thing we want to do is look at it!
But, if you want to get it under control, then you have to face it.
So take out a piece of paper and write down everything you owe and to whom. Take note of these four things:
- The balance
- The minimum payment
- Interest Rate
- Monthly due date
Step 2: Pick a Debt Payoff MethodThe two most popular methods are the Debt Snowball and the Debt Avalanche. I recommend that you pick between them.
I used the debt snowball method and I was successfully able to pay off debt fast on a low income. But you have to figure out what's best for you.
Here's a brief overview of the two methods:
Debt Snowball - start paying off the smallest balance first, regardless of interest rates.
You'll focus all your extra money towards paying off the smallest debt while making minimum payments on the rest.
You work your way up from smallest to largest.
This gets rid of the "pesky" little debts quickly. And for some people, this means you can knock out 2-3 debts in the first month.
It gives you the motivation to keep going. That's why I love it.
Debt Avalanche - focus on the debt with the highest interest rate first.
You don't worry about the balance with this method. Instead, you focus on the APR.
This method makes the most sense mathematically because you will pay less interest overall. Therefore you'll pay off your debts quicker.
Step 3: Figure Out How Much You Can PayYou've got to create a budget and learn how much you can afford to pay.
Plus, if you create a budget, you'll be better equipped to identify leaks in your spending. Thus, you'll save more money.
In your budget, you'll want to focus on your necessity categories first:
- Housing
- Food
- Transportation
- Medical
- Clothing
Then you can budget to cover your debt expenses.
Step 4: Begin Your PlanNow that you've picked a debt payoff plan and written a budget, it's time to work the plan.
Remember, this is a marathon, not a sprint. You have to keep yourself motivated.
Join debt-free online communities to keep yourself inspired. This CAN be done.
So what better time than now?
You've got this.
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