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Easy Steps To Create An Effective Debt Payment Plan

January 21, 2021 By editor

Why do you need a debt payment plan? Because it can increase the chances that you’ll get out of debt. Without a plan, you’ll just be blindly sending your payments to your creditors and lenders. Sure, the original repayment terms are legit and fair.

But is it the best payment for you? Is it the best way to pay off your debts?

If you really scrutinize it, you’ll realize that it’s not. You see, there are many ways to pay off your debts. Depending on your financial situation, there’s a debt solution that’ll suit you. If you choose the right option, you can benefit from getting more savings or achieving debt freedom faster.

To know what you should choose, you need to come up with a debt payment plan. It’ll force you to scrutinize your debt and finances. This will give you an idea about your current situation – like how bad things are. Or what you need to do to complete all your payments.

If you fail to do this, your debt can cost you a lot of money. For instance, with the credit card balance and interest rates, the average American is expected to pay around $1,200 on interest this year.

Do you want to waste that money on the interest alone? Of course not! This is why it’s important for you to get serious about getting out of debt.

For that to happen, you need an effective debt payment plan.

4 steps to create a debt payment plan

Fortunately, there are concrete steps that you can follow to create this plan. Take note that it’s not enough for you to create a repayment plan. It has to be an effective one.

To do that, you have to follow these 4 simple steps.

Make a list of your debts

It’s hard to determine a solution if you don’t know the problem. So the best way to start is to make a list of all your debts. If you want to learn how to manage your finances properly, this is one of the habits that you need to have anyway.

When you create a list of your debts, make sure that you provide all the details. This includes the remaining balance, interest rate, due date, monthly payment requirement, etc. The overview that you’ll get will make you feel more in control of your situation.

Sometimes, we think that our debts are so bad that it seems impossible to pay them all off. But if you list everything down, it’s not so bad after all! It’ll give you the confidence you need to complete your payments. You’ll feel more in control of the situation – and your debts won’t give you sleepless nights and anxiety anymore.

And if you make this a habit – guess what? You’ll never have debt creep up on you again. It won’t reach a point where it’s too hard for you to pay off – because you are listing it and monitoring it closely.

Rank your debts according to priority

After you’ve made a list of all your debts, the next step is to rank them according to your priority. There are two ways to do this.

The first is to rank it according to the interest. The debt with the highest interest rate will be considered the priority. The next highest will come after it – and so on. This is a great option for those who want to save money on their debt payments. After all, the longer it takes for you to pay off your high-interest debts, the more you’ll pay towards the interest. So if you can pay it faster, you’ll pay less.

The other option to rank your debts is according to the balance. Whatever debt has the smallest balance will be considered the priority. Now this option will not necessarily help you save money. But it will help motivate you. How? The small balance means you can completely pay it off in no time. When that happens, that’ll feel like a win for you. Use that to motivate yourself.

Compute how much you can afford to pay

Once you’ve ranked your debts, you’re getting closer to creating your debt payment plan. Now, it’s time for you to compute how much you can afford to pay each month.

Take a look at your budget plan. How much income comes in and how much is left after you’ve paid off your monthly expenses? Having a clear overview of how your money is spent each month is a great financial trait to have. It gives you the information you need to make decisions that’ll improve your financial position.

In this instance, it’ll give you an idea of how much you can afford when it comes to your debt payments. Whatever amount you get, take it and distribute it among all your debts. Pay the minimum amount requirement. If there’s anything left, put it all on the priority debt. That should pay it off faster.

If the funds are not enough, take a look at your expenses and see areas you can cut back on. If it’s not enough, then find a way to earn more.

Set a timeline for each debt

The last step to creating an effective debt payment plan is to set a timeline for each debt. Why is this necessary? Because it’ll make you feel more accountable for your payments. When you give yourself a deadline, there’s a sense of urgency that’ll keep you in line. No matter what happens, you’ll find a way to meet your monthly payments.

This is the feature that’ll make your repayment plan effective. If there’s a sense of accountability, the need to complete the plan is there. Once you complete the plan – that’s when you can consider yourself debt-free.

Why a debt payment plan is important

Having a debt payment plan is really the best way to deal with your credit problems. A survey revealed that almost half of their respondents got out of debt because they followed a plan. If you want to achieve the same success, then you need this plan.

Apart from that, there are other reasons why you need to take the time to create this repayment plan.

Keeps you organized

If you notice, the steps that it took to create the debt payment plan forced you to look at your debts and finances. You need to organize everything so you can determine the best way for you to pay off what you owe. This is a chance for you to organize your finances – making it easier for you to do the next benefit.

Help you control your finances

When you have your debts and finances organized, you can easily get the information you need. This allows you to determine your current status. If you know where you financially stand, you have better control over it. That should make things easier for you to make smart decisions about your finances.

Motivate you to pay debts

With the knowledge that you have about your financial situation, you can find the motivation to pay off your debts. The debt payment plan will show you the progress you’ve made. It’ll encourage you and keep you moving forward until every single debt that you have is paid off.

Step-By-Step Guide To Managing Debt During A Financial Crisis

November 22, 2020 By editor

Managing debt is challenging. But if you’re doing it while you’re in the midst of a financial crisis, it becomes all the more difficult to commit to. Why? Because you have to deal with the limited financial resources caused by the crisis you are in.

Take a look at what happened in 2020. 12.9 million people lost their jobs and several businesses had to close. How can you expect these people to pay for their monthly needs – much less all their credit obligations?

It’s not unknown to us how the pandemic has caused a lot of problems for everyone. It did not just threaten the health of everyone. It also caused people to lose their source of income.

Although what happened can be considered a national emergency, it doesn’t exempt anyone from paying off their debts. You are still required to meet your payments. The government will work out something with the creditors and lenders to give consumers reprieve – but this won’t be forever. So if you really want to pay off debt, you have to get serious about managing debt regardless if you’re going through a crisis.

Managing debt properly despite a financial crisis

Debt, in general, is hard. Paying it off will be challenging simply because you’ll go through a lot of temptation to use your money to pay for something else. There’s always something that seems more important than your debt payments. It could be an emergency situation. Or if you lost your job, you won’t think twice about using your debt payments to buy your family some food.

Some of these reasons are not really bad. But the fact remains that your debt payments will not always be guaranteed. That’s because we don’t know what will happen in the future.

Of course, that doesn’t mean you can’t exert more effort to ensure your debt payments. There are things that you can do to help in managing debts – no matter what situation you are currently in.

Know your debts

The average American has $51,900 worth of debts. If you want to be good at managing your debts, you have to be aware of this amount. But beyond that, you should also know the different types of debt that you owe money to. A lot of us have credit card debts, mortgages, car loans, personal loans, medical debts, etc.

Part of managing debt is the knowledge of how much you really owe and where you owe it from. You can’t really manage something unless you know everything there is to it. Having incomplete information will only give you a partial idea of what you should be managing. It will lead you to miss out on something important. And it can also cause you to make the wrong decisions about your debt situation. So if you really want to manage your debts properly, make sure you have a complete understanding of what you owe. That way, you can align it with your budget.

Take control of your expenses

Now that the word budget is mentioned, it’s time to look at your expenses. Part of managing debt is to make sure your expenses are under control. That way, it won’t compromise your monthly debt payments.

In case your source of income is compromised, you can also look at your expenses to check how you can lower it. Maybe there are expenses that you can stop spending on. What you save can be put towards your debt payments so you can continue paying it off.

Create a debt repayment plan

Having a debt repayment plan makes things a lot easier. This will guide you as you try to completely pay off what you owe. This specific repayment plan usually involves a payment technique that will suit your current financial situation. Like if you are in the midst of a crisis because you lost your job, you probably need a debt reduction. Especially if you’re not sure when you can find a new job.

But if you know that your situation will only be for a short while, then maybe a debt consolidation plan is all you need. Then again, if you want to get the help of a professional, it’s best to opt for credit counseling or debt management.

Make sure you take your time choosing the right repayment plan. That way, you can adjust your efforts in managing debt to suit the strategy you’ll use to achieve debt freedom.

Avoid adding to your balance

If you want to survive the financial crisis that you’re in, make sure that you get better at avoiding debt. At least, the unnecessary ones. There are debts that you can use to improve your financial situation. Like a mortgage or student loans. But there are debts that will only make things worse. Like if you use your credit card to buy things you don’t need and you don’t pay the balance in full. That can quickly turn into a huge problem.

Being in the middle of a financial crisis means your funds are limited. It will be hard to keep paying for all your monthly needs while paying off your debts. So to make sure you won’t make things worse, stop adding more to your debts – at least until you have paid it all off or a significant amount of what you originally owe.

Strengthen your emergency fund

Managing debt means you have to consider the future as well. You have to be prepared with an emergency fund that can get you out of tough situations without using debt.

You see, a lot of people got into a tough debt situation because they weren’t prepared for unexpected expenses. Things like an immediate car repair, a trip to the ER, or broken heating or cooling system. If you are not prepared for this, you’ll be forced to use your credit card to pay for the expense. If you can’t pay it in full, you’ll end up paying the finance charge along with what you owe. You’ll be wasting money paying the interest when you could have avoided it.

By having enough emergency funds, you can avoid relying on debt to pay for unexpected situations.

Lessons you’ll get after managing debt

Managing debt will not just help you pay off what you owe. It will also bring a lot of important benefits. Like helping you learn good financial habits. Paying off your debts over a couple of months or years would mean you have to set aside some money consistently. This habit will make it easier for you to save more money in the future.

But apart from that, there are other lessons for you to enjoy.

Learning from your mistake

Since paying off debt is tough, you’ll definitely realize how much of a mistake it can be to let debt accumulate. Although there are positive uses to it, being irresponsible with its use will only compromise your current finances.

When you are forced to sacrifice some expenses so you can meet your credit obligations, you’ll realize this is something that you should try to avoid in the future.

Learning to use credit properly

Since debt has the ability to compromise your finances, you should be careful whenever you decide to use debt. You can still use your credit cards. It can be convenient and it also provides a certain level of protection. But if you have to use debt, make sure you learn how to use it properly. This is how you can avoid compromising your financial situation.

4 Lifestyle Changes To Help You Settle Debts In No Time At All

November 10, 2020 By editor

Do you want to settle debts at the earliest time possible? 61% of Americans plan to pay off their debts in 2020. But with the coronavirus and the recession happening at the same time, this may be harder to do. As you know, household finances are tight because of the economic effects brought about by these two events. People are taking in more debt as unemployment rates continue to rise. But even those who still have their jobs, they are still financially crippled. They’ll be hesitant to pay off their debts because they would want to focus on conserving their finances. They’ll need it to pay for their basic needs – in case another crisis starts.

When it comes to priorities, you can bet that Americans will not pay their debts first. Unless, of course, they can find a way to reduce their debts.

This is why it’s a good idea to settle debts. But you have to make sure that you know how to use it properly. Because the whole point of settling debts is to negotiate a debt reduction. That can affect your finances. It can get you out of debt, but you have to know what it means to succeed in settling your debts.

At the forefront of what you have to do is to implement lifestyle changes that will help you afford debt settlement no matter what your financial situation is.

Lifestyle changes that’ll make it easier to settle debts

If you want to settle debts in no time, you need to make changes to your lifestyle. Do you think you can handle that? It’s not impossible – and that’s what a lot of Americans realized when the pandemic hit. In one survey, more than half of their respondents said that they started saving more than what they usually did since the pandemic happened.

This is proof that if you put your mind to it, you can make the necessary sacrifices that will help you pay off your debts. And if you succeed in settling your debts, you may not have to get a huge amount of money to begin with.

But to help speed things along so you can enjoy debt freedom, here are lifestyle changes that you may want to consider implementing in your life.

Live below your means

Whether you are in debt, in a financial crisis, or going through financial abundance, it’s always a good idea to live below your means. What does this mean? It means your expenses are lower than your income. That way, once all your bills are paid, you still have some extra money left over.

What will you do with this extra money? You can use it to improve your finances further. You can opt to settle debts by saving up for a lump sum amount. Or you can give your emergency fund a boost. That way, when something happens, you don’t have to rely on debt to get out of that tough situation.

Downsize your lifestyle

If your current lifestyle makes it hard to live below your means, then you may have to downsize your lifestyle. What’s great about this is if you do it right, you may be able to achieve financial freedom as well.

Downsizing means you will change something about how you live your life so you can save more. Like if you downsize your home, you’ll be saving more than just the amount you’ll pay in your rent or monthly mortgage. You’ll also consume less in terms of utilities. That’ll make your monthly bills lower too.

Consider the things that you can downsize so you can have that extra money to use to settle debts once and for all.

Make more money during your free time

This is probably one of the most proactive ways you can take care of your debts. It’s also the hardest to do. It’ll involve working harder and exerting more effort to increase your monthly cash flow. The more you add to your income, the more you can pay off your debts. At the very least, you can use it to save for the settlement amount that you can use to get rid of your debts once and for all.

But what exactly can you do to make more money? You can go online to find freelance jobs. You can use a skill or hobby that you have and sell something.

If you can set up a passive source of income, that would also be better. Some people have extra rooms or spaces at home that they can rent out. It may be a room that you don’t use. Or it can be the garage that you don’t park the car in. Convert these areas so someone can rent it each month.

Follow the 50/30/20 rule

If you’re not sure how you can change your lifestyle, you can base the changes on how you spend your income. There’s this 50/30/20 rule that involves dividing your income into 3 different categories. Let’s assume that your income is $5,000 after taxes.

The first category is for your needs. You can spend 50% of your income or $2,500 on your basic needs. This includes food and groceries, shelter, utilities, etc.

The second category is for your wants. You spend 30% or $1,500 to pay for the expenses that you want – but don’t need to survive. This can also be food and groceries. But for example, while eating is a necessity, dining out is not. And clothing is a need but not the expensive designer ones.

The third category is all about your future. 20% of what you earn, or $1,000 for our example, will go to your future. This includes your savings, emergency fund, retirement fund, etc. You can also use this to save up for the payment you’ll use to settle debts.

By using the 50/30/20 as your guide, you can manage your finances properly so you can get out of debt once and for all.

Set these targets to help improve your debt situation

If you want to achieve debt freedom, you can set targets that will make it easier for you to settle debts.

Here are two targets you can start with.

Update your repayment plan

There are different debt relief options to help you with all types of financial situations. Choosing the right one, based on your specific debt and financial scenario, will prove to make the journey easier. So if you want to settle your debts, there’s a specific repayment plan that will help you do it. You can opt to work on it on your own. Or find a debt expert to help you. What’s important is you should know how to negotiate your debts. You need to talk to the creditors and convince them to allow you to pay only a portion of your debts. If they agree, you can pay the settlement amount and have the rest of your debts forgiven. This will help you save money on the total debt payment.

Increase your emergency fund

Another thing that you should do is to increase your emergency fund. This will not affect your current debt situation, but it will protect you from future ones. You see, one of the reasons why Americans are in debt is because they rely on credit to get them out of tough emergencies.

Well, this is the fastest way to accumulate debt. So if you can increase your emergency fund, that would keep you from having to use debt during desperate times. According to reports, 6 out of 10 survey respondents said they don’t think their emergency fund will last. If this is you, make sure that you can give your savings a boost. You want to be prepared for any unexpected situation or crisis. This will ensure that nothing will compromise your efforts to settle debts.

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