Creating a debt repayment plan will enable you to map out a way to pay off your debt in a way that is achievable, based on your budget, and aggressive enough to pay off the debt on a specific timeline. You can create your repayment plan or work with a professional who will work with you on a plan to get caught up.

The Importance of Having a Plan

There are numerous benefits to a debt repayment plan, but the most crucial reason to have one is that it will help you save money. It may also speed up the amount of time it takes you to pay off your debt and help you start on the path to rebuilding your credit. A debt repayment plan can also help you to stay on task, working towards specific goals to pay off debt and free up your finances.

Understanding Your Debt

The first step is to understand what your debt is. That may seem simple, but do you know how much credit card debt you have? How much do you owe other lenders?

Make a list of all of your debts. You need to be able to see all of your debts at one time. Write down:

• The name of the company
• The minimum payment you have to make
• Your current balance
• The interest rate you are paying
• The date payments are due
• Any incentives for paying off the debt early (such as being able to avoid finance charges)

Be sure to include all debt, including:

• Credit cards
• Mortgages
• Car loans
• Personal loans
• Medical bills

You can write this information down on paper or use a spreadsheet online. The goal is to organize it to make it easy to read so you can refer to it numerous times.

Evaluating Your Financial Situation

Now that you know how much debt you have, the next step is to determine what your debt load is. You need to understand how much debt you have compared to your income. Your debt-to-income ratio can help you better understand if you can repay your debt and what steps to take to pay it off.

In short, you’ll want to calculate your current debt by adding up all your debt. Then, divide that by your annual income; the lower this number, the better.

Choosing a Debt Repayment Strategy

Anything over 30% means it’s time to get to work to pay down your debt. There are numerous strategies available that could help you. Please don’t get too hung up on which strategy is the best but instead, choose one that seems to apply to your situation and put it into place. Speed and consistency matter here.

• Debt snowball method: In this method, you start with the smallest balance you owe. You pay as much as possible towards that small monthly balance until paid. Then, you take the amount you were paying on that debt and apply it to the next smallest debt. Each time you pay off the debt, you can put more towards the next debt.
• Debt avalanche method: If you want to pay the least money to pay off your debt, use this method. You will put any extra money towards your debt with the highest interest rate. Continue paying your other debts, but make minimum payments there. After you pay off the first debt with the highest rate, move on to the next one.

Some people may consider debt consolidation as an option. Look for an organization that can help you to structure a payment plan if you cannot do so yourself. However, either of the methods above can help you maintain your credit score while paying down your debt. That’s not always possible with consolidation programs.

Setting Goals and Milestones

Set some goals for yourself. Here are a few things to keep in mind:

• Stop using credit. The only way to pay off what you owe is to stop building it in the first place. Make it a goal that every purchase will use cash from your bank account.
• Aim to pay off your first debt within as little time as possible. It creates a sense of accomplishment and helps you to stay on the path when you go this route.
• If you’re visual, create a chart for yourself. Document each card paid off and the balance of your existing debts as you do.
• Incorporate a savings goal into your budget. Savings can help you avoid having to use credit in the future.
• Always work to find ways to lower your expenses. Paying less for something saves you money.

Sticking to Your Plan

The secret to success with a debt repayment plan is working it. If you want to reach your goals, you must put in the time to make that possible. Consistency is a big part of that. Once you have a plan, avoid deviations from it.

It is hard work and takes time. Yet, the payoff is well worth it as you’ll have the financial confidence to build wealth that lasts your future. Even if you can only make a small payment, that’s all it takes.