Consumer debt is a significant problem in today’s world. You may be surprised; however, that many people can bring their debt under control on their own with a simple debt reduction plan. While not everyone will be able to manage their financial problems without outside help or even bankruptcy, paying your way out of debt can be done with determination, hard work, and common sense.
The simplest debt reduction plan is typically referred to as a debt snowball. Your first step in planning out debt reduction is to make an honest list of your debts, with amounts, minimum payments and interest rates. You will also need a budget, noting down all income and expenses, including food, housing, transportation and healthcare. Be thoughtful and reasonable about your budget; however, do also realize that you need to allot a substantial amount to debt repayment if you wish to eventually be debt free. If you need to, finding some new sources of income may be necessary. Perhaps a second part time job, exploring work at home opportunities or even simply selling unneeded items to jumpstart your budget can help you move forward. Once you know what you owe and how much you can apply to your debt each month, you will create a repayment plan for your debts.
There are two possible options for a simple do it yourself debt repayment plan once you reach this point. In either case, you will take the amount you can allocate for debt repayment, figure minimum payments for each debt and snowball your remaining available payment amount. If you have 10 debts, each with a $20.00 minimum payment and $300.00 to allocate to your debt, you will make a $20.00 payment to nine of your creditors and $120.00 to the one you are repaying first. As soon as that debt is paid in full, you will apply the $120.00 plus the original $20.00 minimum payment to the next debt in the line and so on.
You may wish to begin repaying the highest interest debt first. This option will result in a lower overall cost for your debt repayment, since you will be eliminating the debts in order of highest interest rate. If you choose this option, once you have paid off the highest interest debt, you will begin applying as much as possible to the next highest interest rate debt.
The alternative is to pay off your smallest debt first, then the next smallest. This option allows you to pay off individual debts much faster and may help to keep you motivated to work hard toward debt reduction. While the end total paid may be slightly higher, if you can stay committed to your debt snowball plan, you may find that it takes less time to get out of debt.
Either of these options will allow you to pay your debt off. You may also, particularly if your credit is still good want to consider requesting lower interest rates from your creditors and exploring financial planning and education to learn to better manage your money.