A DIY Guide to Making a Debt Payoff Plan

Many who are in debt – which is an increasing of number of people – would love nothing more than to have a plan in place where they can work towards pulling out of the hole.

Unfortunately for many, however, they either don’t know where to begin or believe the road is too difficult so they don’t ever really try and overcome their debt. However, by formulating a debt payoff plan that actually works and sticking to the plan with consistency and determination, you can overcome debt.

While it’s important to remember that it takes time and doesn’t happen overnight, you can overcome debt by utilizing these five steps.

1. Determine How Much You Owe

The first step to making a debt payoff plan is to find out exactly how much you owe and who you owe. The best way to do this is to check your credit report using a reputable credit report website. Be sure to choose a trusted name, however, as credit information differ depending on the report you check and a less secure website may not give accurate results.

When checking your credit report, look closely at how much you owe and who the debt is with. If you’re debt is due to credit card charges, consider switching your debt to one of the best credit cards for bad credit.

In many cases, you can even discuss your situation with loan services and negotiate a monthly payment that works best for you. In some instances – such as student loan services – you can temporarily stop payments until you are in a better financial situation without it hurting your credit score.

The ultimate goal is to lower your payments and total amount of how much you owe as much as possible, which can be achieved by discussing your situation with the loan service.

2. Rank Your Debts

After you determine how much you owe, you need to rank your debts from the most important to the least important.

This step is crucial to creating a successful debt payoff plan as not all debt is created equal. Not paying off certain debts can result in a much lower credit score than others. Arguably the best strategy when it comes to ranking debts and paying them off in order is to start with the most expensive debts and then work your way down.

The idea of paying off the most expensive debts may not seem like the right move, and many who are less informed may have the initial reaction of wanting to pay off the lower amounts in an effort to simply get rid of it. However, it’s best to place the majority of your financial effort into the larger sources of debt and slowly chip away at the least important sources of debt.

By doing so, you should be able to avoid any penalties towards your credit score and make substantial progress towards becoming debt free in ways that wouldn’t happen if you were to focus on the less expensive debts first.

3. Conduct a Complete Financial Analysis

After determining how much you owe and ranking your debts from the most important to the least important, you then need to conduct a complete financial analysis, which essentially means you need to gain a better understanding of how much you make in consideration with your expenses and debt.

The best way to conduct a financial analysis is to live your life in a normal manner for an entire month without the attempt to make any changes. During this month, be sure to document every time you spend money regardless of how small or big the payment is. After doing so, you should be able to see where your money is going and eliminate any frivolous spending that may exist.

Ultimately, the goal is to have your post tax income outweigh your expenses each month, and the excess can go towards paying down debt. In the event the expenses and debt payments outweigh your income, you may need to consider additional income opportunities, such as a second job or selling unwanted items around the house.

4. Develop a Realistic Budget

As has been mentioned, the ideal scenario involves having your income outweigh your expenses and debt payments that need to be made. While increasing income is a great way of doing this whenever the opportunity presents itself, cutting your expenses is another fantastic way of doing so as well.

After conducting your financial analysis, you should have a good idea as to where your money is going each month. For most people, there are areas in life where you can cut back on spending without making any real sacrifices. For example, simply changing your eating habits to a more cost efficient way can have a significant impact on the amount of money you spend each month, and the excess money can be put towards paying down debt.

After cutting as many unnecessary expenses as possible and attempting to raise income where it is possible, you need to then put the budget down on paper. Be sure to budget for everything, regardless of how small or big the expense may seem and be prepared to stick to the plan as you implement the budget into practice.

5. Stick to The Plan

Last and most importantly, you have to stick to the plan and stay consistent. Many individuals who make a budget and debt payoff plan become discouraged after several months when they are still in debt.

It’s important to remember that utilizing a debt payoff plan to payoff debt takes time and doesn’t simply happen overnight. Be sure to stay consistent and determined as time passes, and you can eventually rid yourself of debt.

The best way to stay motivated – especially in moments when you feel complacent – is to remind yourself of why you want to be debt free. For many, becoming debt free means having the ability to instead save up money for their child’s college, although many others simply want to take the overseas vacation they have always wanted to take.

By staying motivated and sticking to the debt payoff plan, you can, and will eventually pay off any and all debt you may have.

If you have any experience with digging your way out of financial debt, leave a comment and share any helpful tips you may have in the section below