Once you have decided that you want to get out of debt you need to set up a debt payment plan. It is important to realize that by applying your extra money to one debt at time, you will significantly speed up the debt repayment process. If you work hard you will be surprised at how quickly you can pay off your debt
Time Required: 60 minutes
First, you need to make a list of all the debt that you have. Your list should include the minimum payment amount, the interest rate and how much you owe.
Second, you will need to rank your debts in the order that you want to pay them off. Some experts recommend going from smallest to largest, since this helps to get the momentum going. Others recommend listing the debts from the highest to the lowest interest rate, since this will save you the most money.
Third, you will need to decide how much extra money you have a month to pay towards your debt. You may need to cut back spending in other areas so that you have the money to put towards your debt repayment plan. You may also decide to take on a part-time job or to pick up overtime hours. You can also sell items to earn extra money for your debt payment plan. Additionally, you may want to apply all the money you receive from gifts, bonuses or tax returns to your debt.
Fourth, pay all the extra money on the first debt on your list, while paying the minimum on all other payments. Once you have paid it off move to next debt on your list, paying the extra plus the current minimum payment. Continue to do this until you have crossed all the items off of your list.
Fifth, put most of the extra money you now have into savings. Soon your money will begin to work for you. Make sure that you cut up and cancel your credit cards as you finish. That way you will never need to do this again.
- You need to review your bank's policies about extra payments and principal payments on the loan. This will help you get the most out of your extra payments each month. Some banks will charge you an extra payment fee. Some will not apply the extra payment just to principal. If you understand how they charge, you will be able to work out a strategy that will help you apply the majority of the money to your principal each month.
What You Need:
- The most recent statements of your credit cards and other loans.
- A calculator.
- Your budget.
- Paper and a Pencil.