If you’re like most people, you probably have debts you’re trying to figure out how to pay. Whether you’ve racked up hefty credit card debt or you have a personal loan you need to pay as soon as possible, what you need is a good plan to manage debt properly.
Before we go to the actual plan, however, it’s important to remember that not all debt is bad. Debt may have gotten a bad rap but there is such a thing as good debt. Just to be clear, what we’re going to eliminate from your lifestyle is bad debt. Here’s a quick guide on how to manage your bad debt like a pro:
Assess your budget
Before anything else, it would help if you assess or make a budget if you haven’t done it yet. Before you can create a debt payment strategy, you need to know how much you can afford to set aside for this purpose. Cut down expense whenever you can and use the extra money for your debt payoff plan. If you have to live below your means in order to pay off your debt, do it.
List down all your debt
Once you have your budget set, the next step is to list down all your debts from the ones with the highest interest rate to the lowest interest rate. In most instances, you’ll probably have your credit card debt on top of the list. Other than the interest rate, you’ll also have to note the amount of money you owe per debt category. This step can be quite overwhelming especially when you see the total amount you owe but that’s part of the resolution. Only after you face the music will you be able to create a realistic and doable debt payment strategy.
Pay off debt with the highest interest rate first
As soon as you have the list of all your debts, start paying them off focusing on debts with the highest interest rates first. Your goal is to eliminate these debts as fast as you can. Credit cards, in particular, need to be paid off right away because this type of debt can balloon up over time. Continue the payment pattern until you’ve reached the debt with the lowest interest rate.
Limit your credit card charges
While you’re in the process of paying off your debt, you’ll have to make a commitment to stop creating new debt. In some cases, you’ll have to completely stop charging your credit cards. If you can’t pull that off, you can simply limit your charges until you’ve significantly reduced your debt. It’s also very important to make sure that you’re not just paying the minimum. As much as possible, you’ll have to pay your credit card bill in full each month to avoid the pitfall of high interest rates.
Get professional help
If you don’t know where to start, you can always seek for professional help. You may need to prepare to pay a fee for the professional advice. Consider it as investment. Provided that you found a good adviser, this step is a great way to kick off your debt pay off plan. Rather than create a plan on your own, the financial adviser will do most of the handwork for you. The adviser will create a plan or strategy and all you need to do is follow every step. Consistency when paying your debt each month is crucial to your success. The journey will be hard so make sure you’re committed enough before starting this project.