How To Create a Debt Repayment Plan in 7 Easy Steps

Ignoring your debt and neglecting to take steps to repay it, will often, if not always, cause it to become worse. The reason is that debt collectors often assess additional fees and interest on the debt that you owe, so unpaid debts can become monstrous in short periods of time. Creating a debt repayment plan is essential to your financial health.

Follow these steps for an effective and workable plan:

1. List all your debt.

Write down everything that you currently owe money on, including debts that you repay monthly and debts that you've allowed to slip out of your conscious thoughts for a while. If you can’t remember what they are, you can pull your credit report to see what debts are reporting. Keep in mind, all debts don’t report to the credit bureaus and those are the debts that people often forget. Those debts are ones such as; Buy Now Pay Later debt and let’s say, debt you may owe to your dentist.

Old debts that you've pushed aside have a way of coming back to haunt you, especially if you decide to apply for a mortgage loan or some other types of loans. So it's wise to pay off all of your debt, not just some of it.

2. Rank your debts.

Once you have a list of all your debts, rank them in an order based on how you want to repay them. Some people choose the snowball effect, which entails paying down the smallest debts first, then moving to the largest. Another good strategy is to pay off the debts with the highest interest rates first so that you're not accruing a lot more interest while you're working on other debts. Both strategies are fine; ultimately, you want to choose the one that's best for you. To get the best debt pay off strategy for your credit card debt, click here.

3. Determine your budget.

Figure out how much money you can reasonably spend on debt repayment from month to month. Even if each debt is large, you can still tackle them by making monthly payments. Be realistic about how much money you must spend. Don't take money away from other obligations to pay down debts - only use money that you have outside of your normal financial obligations. However, creating a budget is the only way to ensure you do have extra money to put towards debt after paying all of your bills.

4. Create an emergency fund.

If you don't already have an emergency fund, now is the time to put one together. Save at least $1,000 before you begin paying down debt so you have money to fall back on in the event of a financial emergency.

5. Start Tackling

Once your emergency fund is put together, start at the top of your debt repayment list and work down.

6. Focus on a single debt at a time.

Focus your attention on only one debt at a time rather than spreading your budget money out over numerous debts at once. The reason is so you can day down and wipe out one debt after another, maintaining your focus and momentum.

7. Find extra money.

As you continue to pay off debt as you all the progress you’ve. made, you’re going to want to keep doing it. The faster you pay it off, the more money you save. You’ll need to find extra money either in your budget or by creating a side hustle to be able to throw more money at your debt.

Final Thoughts

As with any personal finance plan, your own experiences may vary depending on your debt, the amount of your expenses, and your income. Using these guidelines, design a plan that works well for your own situation, and soon you'll be enjoying the many benefits of a debt-free lifestyle.