Despite making timely payments and controlling spending, your debt might seem or become unmanageable. This issue often stems from the high interest rates on debt, creating a cycle of continuously growing account balances despite regular payments. What steps can you take to address this?

Understanding Your Debt

Understand your debt by completing these steps:

• Identify your creditors – who do you owe money to?
• Determine the amount of debt you owe each creditor.
• Find out the interest rate for each of your loans.
• Check for additional charges, like over-the-limit or late fees.
• Assess if you're still accruing debt by using the credit line for purchases.

Also, gain insight into your loans, including your proximity to the credit limit and the expiration of any introductory rates.

Setting Realistic Goals

Begin by setting realistic debt-free goals. If it took several years to accumulate this debt, it will likely take time to pay it off.

Start by establishing an emergency fund if you don't already have one. This fund allows you to access cash for urgent needs instead of relying on credit.

Next, determine realistic targets for debt repayment. Consider how much you can afford to pay towards your debt each month. You might need to work more, spend less, or do both to achieve your ideal repayment goals.

Creating a Plan

You can create a plan now that you have some ideas and goals. This plan starts after you have established your emergency fund. You have two main choices to make here.

Debt Snowball Method

In this method, arrange your debts in ascending order, from the smallest to the most considerable amount owed. Focus on paying off the debt with the smallest balance first by contributing any extra funds you have. Once you pay off this debt, apply the amount you were paying towards it, plus the minimum payment, to the next smallest debt. Continue this process, tackling each debt in order of increasing size.

Debt Avalanche Method

In the avalanche method, arrange your debts, starting with the one that has the highest interest rate. Prioritize paying off this debt by allocating as much as possible towards it. After fully paying it off, focus on the debt with the next highest interest rate. Targeting the debts with higher interest rates first helps you reduce the overall amount you spend on interest.

Budgeting for Debt Repayment

Once you select a method, you need to budget for debt repayment, which means you must determine how much extra money you can apply toward your target monthly debt. It has to come from someplace in your budget. (If you do not have a budget yet, you'll want to create one incorporating debt repayment).

Reducing Interest Rates

As you pay off your debt, actively engage with your lenders. Ask them to reduce the interest rates on your loans or credit cards. This request can lead to savings, and there's no downside to asking. While you're at it, ask them to stop charging an annual fee. Also, explore consolidating your high-interest-rate debt into loans with lower rates, provided you qualify for them.

Increasing Income and Reducing Expenses

While implementing these steps, strive to increase your income and decrease your other expenses. Identify any opportunities to save money and apply these additional funds directly to your debt repayment plan.

Tracking Progress and Staying Motivated

Use a chart or a simple list to help you see where you stand. As you pay off a debt, make sure you cross it off the list and feel a sense of accomplishment when you do. It will help to propel you forward.

Takeaways

Debt is a significant factor in life. Though it can be easy to create, repayment of it takes time and a dedicated plan. The good news is there are steps you can take to get out of debt, including setting up a debt repayment plan and working with your creditors.