Americans carry a lot of debt. In fact, the average household in the country carries a whopping $137,063 in debt. Based on the fact that the median household income is just $59,039, many consumers are probably spending a lot more than they can comfortably afford.
I must confess that I’m one of those millions of Americans who probably spends a lot more than I should. In fact, that’s exactly how I got into debt in the first place. Like many other Americans, I found myself drowning in mounting debt from my long trail of big expenditures on credit. It was a big eye-opener to find out that I could barely even get a car loan because my debt load was so high. Obviously, it was time to do something about it.
After a lot of homework, I discovered that there was actually a lot that I could do about my debt. All I needed to do was come up with a solid debt payoff plan to help me whittle down my debt load. But not only did I have to come up with a plan in the first place, I also needed to make sure I was dedicated and disciplined enough to see it through.
The plan worked for me, and it can work for you too if you stick with it.
1. Be Realistic About Your Debt Payoff Plan
You can create the best debt payoff plan the world has ever seen, but it will be completely useless if it’s unrealistic for your particular financial situation. Make sure your numbers are accurate when you create your plan. Don’t overestimate how much you can pay or underestimate how much time it will take you to pay your debt down. An unrealistic debt payoff plan will only set you up for failure pretty quickly, which will just drain you of your motivation.
Consider how much you presently earn as well as all the expenses you’re obligated to pay every month. Use these numbers to calculate how much you can realistically afford to put towards paying down your debt every month. To make this easier, you can always use a debt payoff calculator to get a clear idea of how long it will take you to pay your debt down based on your regular contributions.
Not only should your plan be attainable based on your finances, it should also be revisited every so often, especially if anything changes along the way. There might be times when you can put a little bit more money towards your goal. On the other hand, there may be times when money is a bit tight to the point where you might have to scale back on your debt payoff contributions. Readjusting along the way is an important part of keeping your plan on track according to your changing financial position.
2. Pay Off Your Smallest Loan First
Sometimes it just makes sense to focus on one debt at a time rather than spreading your finances thin trying to pay down your debts all at once. One way to tackle this is to use the “snowball method.” With this type of debt repayment plan, you would focus on the smallest debt load you have first before tackling any other account.
Most of the available funds to be used to pay down your debt would be focused on your smallest loan, and minimum payments are made on all others. Once the first loan is repaid in full, you can begin paying down the next smallest loan until all of your debt has been completely paid off.
This system works well because smaller loans typically take the least amount of time to pay off simply because there is less to pay. After paying off that debt, you’ll feel a sense of accomplishment and be more motivated to continue paying off all your other debt in succession.
3. Pay Off Your Highest Interest Debt First
This method is similar to the snowball method in that you focus on one loan at a time. But rather than paying down the loan with the smallest amount first, you would pay down the loan with the highest interest rate.
The logic behind this method is that you would be minimizing the amount of money that is going towards interest rather than principal. Obviously, the higher the interest rate, the more money you’re spending overall.
Again, once you’ve tackled one loan, work on the next loan with the second-highest interest rate, and so on.
4. Negotiate a Lower Rate From Your Creditors
We’ve already established that paying a lower interest rate is better for obvious money-saving reasons. With a lower rate, you can pay down your debt a lot faster, and one way to reduce your rate is to just inquire with your creditors.
Sometimes it may not be possible to negotiate a lower rate with your creditors, but you won’t know until you ask. The worst they can say is no, but if they say yes, you could potentially save hundreds or even thousands of dollars depending on how much you currently owe and how much of a reduction you can get.
5. Take Out a Loan To Pay Down Your Debt
Like many Americans, I had a ton of different credit accounts that I had to juggle. It was definitely tough to keep on top of all those bills that seemed to trickle in at different times of the month. And despite my best efforts, I still managed to miss a bill payment or two here and there. If you know anything about credit scores and how they’re calculated, you know that missing a payment is definitely not a good thing.
Needless to say, my credit score definitely took a couple of hits because of my failure to make timely payments all the time. Not only that, my debt continued to mount.
But I found a handy tool that allowed me to pay off all my credit balances: Payoff Loan. By taking out one loan, I used the funds provided to cover my outstanding balances and get out of debt a lot sooner than had I continued to try and pay all my different loans separately. Plus, my credit score even jumped a few notches!
The process with Payoff Loan is pretty simple, too. All you need to do is check your rate, choose your terms, verify your info, and get your hands on the funds needed to pay down your debt! It really is pretty simple and extremely helpful when it comes to managing debt.
6. Automate Your Savings To Be Put Towards Debt Repayment
Sometimes it’s necessary to make extra payments towards paying down your debt a little faster. But it can be tough to manually put money away every time you receive your paycheck. Not only that, it can be tempting to use the money you otherwise would have used towards paying off your debt for a leisurely expenditure.
To make things easier for yourself, consider automating your savings. You can set this up with your online banking to have a portion or percentage of your paychecks deposited into a savings account that’s dedicated specifically towards paying off your debt. At the end of each month, you should have some extra cash to throw at your debt load.
Paying down debt is not a fun or easy thing to do. But if you ever want to taste what financial freedom is like at any point in the future, you’ll want to do what you can to reduce your debt and pay it off completely. Sure, putting a debt payoff plan in place requires some level of patience and self-discipline on your part – and maybe even a little sacrifice. But with the right tools and strategies, there’s little reason why you shouldn’t be able to see a $0 balance on your loans one day soon.