Is your debt stressing you out? If so, we promise you’re not alone. Especially if you are financing a home. According to the Center for Microeconomic Data, mortgage balances—the largest component of household debt—rose by $60 billion during the second quarter of 2018.
If you’re committed to getting out of debt, we’ve got you covered on how to set up a debt repayment plan to make sure you stay on track and reach debt freedom as soon as you can.
Here are five simple steps on how to jump-start your debt repayment journey:
#1 Assess The Amount of Debt You Owe
Of course, that’s what Mint is here to help you do — easily and automatically track where every last penny goes. Tracking your expenses will help you see where you can cut down, thus helping you reduce outstanding debt, as well as your debt/income ratio (outstanding debt divided by annual net income). Having a clear view of the numbers will empower you to make a plan that actually works based on where you are now.
#2 Sleuthing For Savings
Don’t think you have any extra money to create a debt destroyer? Once you start tracking your expenses, you might be surprised. For example, can you can cut your cable bill (average of $75 a month) and switching to a streaming service (about $10.99 a month)? Or is there a subscription you’re paying for that you don’t actually use? The smallest things here and there can really add up, so make sure you understand what you don’t actually need to be paying for in order to find some extra cash to put toward your debt goals.
#3 Pick A Debt To Tackle First
Some people choose the smallest debt first because getting a few wins on the board helps motivate them to keep working toward bigger goals. Others choose to go after debt with the highest interest rate first because it’s costing the most money right now. Once you choose which debt to work on first, pay the minimums on all other outstanding debts, and put every leftover dime toward the debt you’re targeting.
#4 Start Snowballing
After you pay off the first debt, move on immediately to the next one on your list, instead of taking a break and using that extra money elsewhere. As your number of debts decrease, the amount of money you have to attack the ones that remain increases. This means you can snowball your payments until all of your debt is pummeled
#5 Enjoy Life After Debt
Once you’ve started paying down debt, now you’re ready to establish a commitment to saving. First, determine what you are you saving for! The first goal you should set is an emergency fund. This will help protect you in case of sudden unemployment, a medical emergency or other unexpected expenses. If you want to be consistent with your savings contributions, try automated savings. Start small and then increase the deposit amount when you feel confident that you can set aside more.
The earlier you get started with a strategic debt repayment plan, the better. Remember, take things step by step and first get organized to figure out what you owe. We know debt can feel overwhelming at times, but it’s important to remember it doesn’t have to last forever if you’re committed to creating a better financial future!