How to Prioritize your debt repayment plan
Once you are caught up into the debt cycle, it get harder and harder to get out. It’s gets harder and harder to manage. The longer you wait to start paying down your debt the more you will pay in the end.
The amount you have to pay in debt will not stop increasing until you do something about it because the interest rate will keep adding up to what you already owe to the lender.
So, here are some ideas on How to Prioritize your debt repayment plan
Getting out of debt is a really big deal to live the life you always wanted. There is a saying that I have lived by for many years.
“Live today like no one else, so you can live tomorrow like no one else”
Meaning live very frugal now, get out of debt, save for tomorrow. When tomorrow comes you will have the money and no debt to live like you want. Go where you want and buy most things you want. Sounds great right? Well it’s up to you, you can do this.
So, below are some ideas: How to Prioritize your debt repayment plan.
That is why it is often said that paying off debt is a long process and you will have to manage it strategically.
You must have come across various articles that teach you how to get rid of debt but they do not include the actual techniques or a complete step by step process that can help you out. Here we have a strategically designed process that will help you get rid of the debt easily.
But, the most important part of all of this is your determination and your mind set.
And you must make getting out of debt your top priority. And you must realize this is not a quick fix, it’s a life style change.
Make a budget for saving money and your emergency fund.
In order to pay your debt, the first change you have to bring in your life is budgeting. The reason you are unable to pay your debt is that you are unable to manage your budget.
It is important for you to understand that if you will not manage your budget it would be hard for you to pay off the debt because you will not be saving any money.
Remember tt is important for you to assure that you manage your budget in such a way that you can easily save 20% of your monthly income. It will allow you to save a reasonable amount of money.
But, first save and cut out some wants. To build an emergency fund of $2,000. While building this fund cut everything you can.
Everything listed below just reduce the cost or cut them out completely. And the great thing they won’t change your life style.
Simple and easy things to cut:
Cell phone bill
Eating lunch out daily.
Going out to eat.
Cable. Use Netflix or Hulu. No contracts.
Designer clothes full price. Instead buy no designer clothes. Set an annual amount for clothes.
Stay off Amazon.
Cook more at home. Meal Planning. Make sure you make a grocery list and stick to it.
Stop smoking and drinking.
Cut up all credit cards. Except for one. Yep one. Unfortunately you need a credit card for almost everything today. To rent a car or check into a hotel or motel.
There are dozens more ways that you can cut out or just reduce the costs of things you buy or use. You will have that $2,000 saved very quickly.
Put, the emergency fund away and don’t touch it.
So, now that you have the $2,000 emergency fund saved you can now start paying off your debt.
Below are: How to Prioritize your debt repayment plan
Organize your debt
One of the most important things that you have to do is organizing your debts. If you will not organize your debts you will never know the amount you owe to the lenders and how it is increasing. A few things that you have to consider are.
- All the debts that you owe and the amount that you have to pay
- What is the minimum amount you can pay each month for each debt?
- Interest rate of all the debts that you owe to your lender.
- Due date of your debt payment
Once you will properly organize everything it will get easier for you to decide that which debt you will pay first.
Use debt payment strategies
In order to prioritize the debt payment, process it is important that you plan everything strategically. If you owe only a single debt you have to plan that how you will collect enough money to make the minimum payments.
On the other hand, if you owe more than one debt it is better for you that you pay attention to the amount that you owe and the interest rate of every debt. It will help you in the selection of the strategy that you will be using to pay off the debt.
Here we have 3 famous strategies that you can use for paying off the debt.
1- Pay off the smallest amount first
If all the debts that you owe have almost the same interest rate with not much change, it is better that you pay the one that has the smallest amount first.
In the beginning, it would not be possible for you to save a lot of money. You can start from the smallest one and work your way up.
It is the fastest way of paying the debts because you will quickly get rid of the smaller amount and it will give you the peace of mind that you have at least some of the debts from your checklist.
After that, you will be able to maintain your routine according to the amount that you owe.
2- The debt snowball
One of best ways to get rid of the debts if you owe more is to use the snowball method. There are many people who are only paying a minimum of debt that they owe.
This is the reason they are unable to get rid of the debt cycle. For example, if you have 3 debts, you have to assure that you get rid of the biggest one first.
All you have to do is keep paying the minimum for the 2 debts while you can pay more than minimum for the 3rd debt.
In this way, you can quickly get rid of one of the debts and then you can keep focusing on the rest of the two. It will not increase the interest that is building up and you can quickly get rid of the debt that you owe.
3- High-interest rate first
If you have the debts with a huge difference between the interest rates it is better that you arrange your debts in the descending order.
In this process, you have to pay the debt with the highest interest rate first. The reason is that it is the main burden you have to deal with because rest of the debts with smaller interest rates are easier to manage.
Assure that you manage everything strategically.
In case you are confused and it is getting hard for you to manage your repayments, it is better that you consult an expert. He will provide you proper guidance regarding how you can manage your budget and debt repayments.
You may have to bring a few lifestyle changes depending on the debt that you owe to your bank or lender.
How to Prioritize your debt repayment plan
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