Your debts are pushing down on your shoulders and you feel there’s no escape? Don’t you know how to create and start a debt reduction plan? Then, the following recommendations will sure come in handy.
There’s a great freedom that comes with getting out of debt. Anyone should feel that kind of peace, knowing they don’t owe a lot of money anymore.
Easy Steps On How to Make a Debt Reduction Plan
Follow this guide and it may help you get out of debt faster than you imagine.
Know What You Owe
Make a list with all your debts, interest rates, etc. Whether you write it down or you create a spreadsheet on your computer, don’t forget to go through this first step. It is important due to the fact that it will make you have a clearer view on your debts, as well as on your financial life.
Write down all your debts along with all their details: the type of debt (mortgage, student loan, credit card, etc.), how much you owe, the interest rate, the monthly payment, etc. Gathering all this information will make the following steps much easier.
Set Periodic Goals
Being goal-oriented is a powerful tool that you can use in your favor. This mindset makes you more organized and makes your objectives easier to achieve. When you set a financial goal, you must think of how much you are able to pay each month, in order to cover your debts.
The final goal is to pay off all your debts. In order for this to happen, you must also set a timeline. Calculate how much you can pay each month, and how many months you need in order to cover all the debt. This way, you can set a realistic deadline.
Set a Paying Plan
There are more methods to make a paying plan. You can either make a debt reduction plan starting from the smallest amounts of money you owe, or vice versa. It is completely your choice if you pay your debts from highest to lowest or the other way around.
My recommendation is to pay your debts from highest to lowest. Then, make the minimum payment possible for the other smaller debts. This way, you will be more relaxed, knowing you paid most of the amount of money owned.
Track Your Spending
Keep track of all your expenses. Trying to get out of debt, can have an influence in your lifestyle and your habits. You will have a clearer insight on what your money goes. You should even try to make a distinction between the money you spend on what you really need, and those you spend on impulsive unnecessary things.
Use All the Cash You Can Find
Start using more cash instead of credit cards. Studies have shown that using credit cards only makes us spend more, because we see those plastic cards as play money, instead of real ones. Using credit cards will only increase your debts.
Cash will only get you into the habit of saving money, which is one of the most important financial skills there is. Also, think about keeping a separate saving account, where you can put your extra cash or your monthly savings. This way, it will be easier for you to not touch that account, hence, not spending that much money.
Sell Everything You Do Not Need Anymore
Our houses are filled with things we do not need or use anymore, but we keep them anyway. Try to sell them online, or even organize a yard sale. Whatever you do, just get rid of the things you don’t need. Not only it will help you with your debt and it will make you earn extra cash, but it will also make your house more spacious.
Set Your Financial Priorities
Discover what your priorities are, in creating your debt reduction plan. Also, cut all the unnecessary costs: dinner at restaurants, etc. Instead, you should think of ways to change your habits: pack a lunch for work, jog in the park instead of going to the gym, switch to a lower-cost mobile phone provider, etc.
Increase Your Income
You can ask for a deserved raise at work or you can find another job. You can even think of ways to earn some money while keeping your day job: selling stuff, find another job, start a small business. Possibilities are endless.
Below, you have a list of things to do in order to lower your debts:
- Do not get into debt by using your credit card. Use more cash.
- Spend less than you earn.
- Put a small percentage of your monthly salary into your savings account.
- Stick to only one credit card.
- Avoid eating out.
- Make a budget plan.
- Create a debt reduction plan and stick to it.
To sum up, your life can change for the better. You can pay off your debts and get that freedom you deserve. There are only two things to take into consideration: be organized and be perseverant. Start creating a debt reduction plan, and you will see the changes it may bring to your life.