Debt seems to be becoming the norm these days, and in turn, an increasing problem for many American families. And once this debt starts to accumulate, it can be difficult to pay off. But debt may not only be stressful, it can be extremely costly too. Having a good debt payoff plan can help you get organized and avoid letting debt accumulate to insurmountable amounts.
Get all your ducks in a row
Figuring out how to pay off debt often starts with figuring out how much debt you actually have. This is the time to get a list of debts together that includes the actual debt amount, what it’s related to (vehicle, home, consumer, or other), interest rate, and a total of all debt. In this way, you’ll be able to see a breakdown of your debt and begin to get an idea of how best to tackle it.
Income vs. expenses
Figuring our how best to tackle debt can be difficult if you aren’t exactly sure what resources you can put toward debt reduction. This is when figuring out what your actual expenses are in relation to income can pay off. Listing all your regular expenses each month and comparing the total to total monthly income can provide a better idea of what will be left over (if anything) at the end of each month to put toward paying down debt. If there isn’t any extra cash left, this can be the time to look for areas in which to reduce expenses and/or increase income. In a way, reducing debt itself may be a way to reduce expenses as you begin to diminish the overall interest owed on that debt or number of payments due each month.
Applying cash to debt
Once you have an idea of what funds you have to apply to paying down debt, then it’s probably time to get started. But where to begin? Well, it may depend on your outlook toward debt, what motivates you most, and personal preference.
There may be certain loans with deferrals or zero interest rate periods during which time you don’t have to pay on the loan or they aren’t accumulating any interest. During such times, it might be best to focus on loans that have higher associated interest rates. You may then decide which debt to pay upon based largely on the interest rate. Paying more money toward a credit card balance with a 15 percent interest rate than a home mortgage with a 4 percent interest rate and tax benefits might be the better route to go. Otherwise, you might prefer getting several small debts all paid off quickly. Wiping out several hundred dollar debts in one fell swoop might be invigorating, helping to declutter the old bill pile and motivate you to push forward on your debt payment progress.
Sometimes getting debt paid down is more psychological than anything, and figuring out what motivates you to continue the debt payoff push might be the most critical aspect of all.
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The author is not a licensed financial or debt reduction professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.