In contemporary society, people like me end up dealing with several loans to meet essential needs. Credit cards that attract high-interest charges and personal loans can easily turn into a nightmare within a short period, although some loans provide key assets like homes and cars. But do not worry!
What I did is that I developed good strategies for paying off debt, which helped me be debt-free and set up a steady financial life. Here, I will outline how to create a debt management plan to pay off debt and help get the credit score to the desired level in the future.
[1] Prepare a List of All Active Debts
Now, let’s talk straight. It will be difficult to plan an assault when we do not know what kind of debt it is we are facing. For this reason, it is required to make a list of all one’s debts in order to have the full picture of the situation. This ranges from credit card debts and loans to debts owed to friends and family and personal and academic loans.
Choose honesty as the policy you will practise with yourself. Record the amount of money which is needed to be paid every month for the respective loans, the interest charged on this minimum amount, and the total outstanding amount.
[2] Set Debt Priorities
Once I prepared my list of debts, I started to rank which debts needed to be prioritised for payments first. Although I had to pay the minimum amount due on bills like my credit card, I managed to save some extra cash by first paying off the debts that put me under a lot of stress.
The secret is to figure out what suits me. Not to mention, in an actual urgent situation, paying off bills like my mortgage or utilities first was the best course of action to keep my house and comforts intact.
[3] Looking for Additional Income Sources to Pay Debts
We’ve done the maths and come up with a plan for paying off your debt. But what if we could quicken the pace even more? This is where having more money changes everything. After you’ve determined how much you can reasonably pay off each month in debt, let’s look at some other sources of income.
Like me, you can also choose to save money with the help of strict budgeting. However, I needed some extra cash, so I started doing overtime and freelance work, and you can do the same. No matter where or how many extra hours you have to give in, keep working hard until you become debt-free in a few months/years.
[4] Pick The Right Debt Repayment Strategy
Once my debt priorities were set, I started looking for ways to accelerate my debt repayment process. Saving time and money are both possible if you approach your debts smartly, and I did the same. I opted for two options: Debt Avalanche and Debt Snowball.
The snowball strategy addresses the debt with the lowest balance first. This strategy is all about quick gains. When you pay a loan and see that most of the EMIs are paid off, you’ll get the drive to make more subsequent payments and feel like an achievement. However, in comparison, the Avalanche first focuses on the debt with the highest interest rate.
Lastly, the Debt Snowflake strategy entails setting aside small sums of money each day to pay off debt. This strategy is a useful supplement to the Snowball and Avalanche tactics, providing a faster route to being debt-free.
[5] Conclusion
In addition to paying your EMIs on schedule, you should strive to pay off all of your debt before the loan term expires. You may take control of your finances and manage your money so that you have enough for the future with the aid of a debt repayment plan. You will undoubtedly reach your money objectives if you start with little adjustments to your financial routine.