Step 1: Your debts
Before you can get a firm handle on how to take care of your debt you need to take a moment to jot them all down in one place. List them by how much you owe, interest rate, monthly payment
Step 2: Income vs. Expenses
If at the end of the month your expenses are more than your net income you are probably having a tough time financially as you are borrowing more every month. At some point you will need to either make more money or dramatically reduce your expenses. The fastest debt reduction plan includes earning more money and reducing your expenses.
Step 3: Emergency fund
Once you’ve got a handle on how to run your monthly budget with a surplus you’ll want to start saving up an emergency fund. A good rule of thumb is saving 6 months of your expenses. That way if something comes us you have a much better chance at just paying cash for it. The financial cushion may really ease your mind too as most people biggest concern is money.
Step 4: Highest Interest Rate First
Debt reduction can sometimes be hard because you may feel like you want to pay off some small balance first so you have a win under your belt. That is a totally valid feeling however if your trying to pay the least amount of money on your debts than you should pay the debts with the highest interest rate first.
Step 5: Stick to your Plan
One of the hardest things to do is to change our habits. Sticking to your debt reduction plan is key to your success. If you’re lucky you’ll get addicted to paying off your debts and as you see them going down you’ll want to be even more aggressive.
Step 6: Negotiate with your creditors
You never know unless you ask. If you are having a really tough time then giving your creditors a call and trying to negotiate your debts for a lower monthly payment, lower interest rate or maybe even a lower principal amount.
Step 7: Refinance
If you’ve remained current on your debt balances than your credit score along with the rest of your financial picture may allow you to put a portion of your balances on a lower rates interest card or perhaps a lower interest rate on your mortgage or car loan. It’s worth looking in to.
As you can see a debt reduction plan can be simple. Follow these steps and you will be in a much stronger financial picture before you know it.