While it may seem overwhelming, you can get out of debt with a little timing and patience. You will have to start by creating a new household budget that limits your unnecessary spending each month. By getting rid of subscription services, gourmet coffee, and frequent restaurant dining, you can ensure you’ll have more disposable cash at the end of each month. That will help you follow through with the rest of this debt repayment guide.
Make a List of Debts
Your first step in creating a debt repayment plan for yourself is to make a list of debts. The list should include each credit card debt, personal loans, student loans, auto loans, and medical bills. Your list should include the name of each creditor, the amount you owe, the minimum payment required each month, and the amount of interest applied to each debt. These factors will help you determine which debts to pay off first as you use one of the two following methods.
The Snowball Method
This involves choosing the smallest debt and using your monthly disposable income to pay off that creditor by making more than the minimum payment each month. Meanwhile, you should continue making all of the required minimum payments to each of your other creditors every month. Once that smallest debt has been completely paid off, all of the money you had been sending to that creditor should go towards paying off the next smallest debt. By following this system, you’ll have more money to devote towards paying each debt as you work your way up to the biggest debts.
The Avalanche Method
This method involves paying off the creditors who are charging the highest interest rates first. Again, you should still be making your regular monthly payments to each of your other creditors. By tackling the creditor with the highest interest, you can keep your debts from mounting as you try to pay everything off. Once you pay off that first creditor, move onto the creditor charging the second-highest rate of interest. Follow this pattern until all of your debts have been repaid.
You should also order your free credit reports from each of the three major credit reporting bureaus. Once you have paid off your debts, you can check to verify that you don’t have any additional outstanding debts. You should also look for errors and report them immediately. Removing fraudulent or erroneous debts from your report will help you rebuild your credit.
Outbound link: https://www.moneymanagement.org/budget-guides/create-a-diy-debt-repayment-program