Being in debt can feel inescapable. That’s because the interest on your debt compounds, leaving you fighting a problem that only seems to get bigger. You need a plan to get out from under your debt so that you can get on with building your future. Below is a basic plan to get you started on erasing that debt:
The simplest rule of paying off debt is that you attack your high-interest debt first. Rank your debts by interest rate, and plow any extra money you have into paying off the highest-interest one (usually credit card debt). When that’s paid off, put the extra money towards the next highest, and so on. High-interest debt compounds faster, so if you let it slide or only pay the minimum, you could fall behind.
Consolidate to Save:
If you have multiple high-interest debts, it might make sense to consolidate those debts into a single one. That means getting a new loan to pay off the old ones, only at a lower rate. That way, you still have to pay off the same principal, but the interest grows more slowly. When you’re facing a double-digit interest rate, the right consolidation loan can be a godsend. It’s also nice to only have to keep track of one debt instead of worrying about three or four.
Get Good Counsel:
When you have too much credit card or personal loan debt, look for a nonprofit credit counseling agency, preferably one endorsed by the National Foundation for Credit Counseling. They can help you create a comprehensive debt management plan that might lower your interest rates and consolidate your payments. Keep in mind that this plan doesn’t include debts like mortgages or student loans, and that you may have to give up credit cards until you repay the debt.
Budget For Debt Freedom:
Whatever debt repayment method you choose, you should build paying off debt into your monthly budget. Just as you budget for housing, food, and transportation, you should also set aside a certain amount of what you make each month to go towards debt payments. The more you can budget, the quicker you can free yourself from debt. It may mean that you put off or minimize saving for your future, but when you pay off the debt, that same amount can go directly into your savings account or retirement account. Don’t have a budget yet? Now is the perfect time to start one.