海角大神

In my opinion, if you鈥檙e in a financial hole, constructing a debt repayment plan is the single strongest step you can take. It creates a clear picture of your debt situation, tells you the most efficient way of paying them off, offers you clear steps on what to do next, and can also be a useful tool when looking for additional help.

Constructing Your Plan
聽It鈥檚 pretty easy to put such a plan together. Put aside an hour and follow these steps.

First, collect all of your debt information in one place. You鈥檙e going to want your current balances, your interest rates, and your minimum monthly payments for each of these debts.

Then, simply make a list of those debts, ordering them by interest rate. Make four columns 鈥� debt name, balance, interest rate, and minimum payment. Put the debt with the highest interest rate at the top of the list and add others below that in order of interest rate, with the higher ones near the top.

Once you have that, total up your minimum payments. Add them up to see how much you鈥檙e putting toward your debts each month.

Then, add some amount to that total minimum payment. It needs to be an amount you can consistently afford. Maybe it鈥檚 only $25 a month. Maybe it鈥檚 $500. We鈥檙e all in different situations with different financial requirements.

That new amount, the total minimum payment plus the additional amount, is going to be how much you put toward debt each month until these debts are all gone.

Using Your Plan

Actually using this plan is pretty easy, too. Each month, you鈥檙e going to make the minimum payment on each debt except the top one on the list.

When you made your plan, you calculated an amount that you鈥檙e going to put toward your debt each month. As you make each minimum payment, subtract that payment from that total amount you figured up before.

When you鈥檙e down to just the highest interest payment, you鈥檒l have an amount left that鈥檚 higher than the minimum payment for that bill. Instead of making the minimum payment, throw all of the remaining debt repayment money you have at that debt this month.

So, let鈥檚 say you鈥檝e decided to put $2,000 toward your debt each month. You have a mortgage at 4.5% with a $1,200 monthly payment, a student loan at 5.5% with a $400 monthly payment, and a credit card at 19.9% with a $100 monthly payment. You鈥檇 make the minimum payment ($1,200) on the mortgage, the minimum payment ($400) on the student loan, and you鈥檇 put the remaining $400 toward the credit card. That鈥檚 an extra $300 payment on that debt this month, which will really help in knocking down that balance.

Eventually, you鈥檒l pay off a debt. When that happens, the only thing you do is cross that debt off the top of that list. Don鈥檛 change the amount you鈥檙e putting toward debt each month. Instead, you鈥檙e going to start making a bigger monthly payment to the new top dog on the list. In the case above, that would mean putting $800 a month toward that student loan while still making the $1,200 a month minimum on the mortgage. Once the student loan is gone, you鈥檇 put $2,000 toward the mortgage.

The goal of a debt repayment plan is debt freedom, pure and simple. Debt freedom offers so much freedom of choice and peace of mind that it鈥檚 always a worthy financial goal.

Also, if you鈥檙e looking at loan consolidation or other forms of financial help and are meeting with a loan counselor, having a debt repayment plan makes your case look better to that person and they鈥檙e more likely to help you get a good consolidation.

If you鈥檙e in any sort of debt trouble, put a debt repayment plan together today and stick to it. You鈥檒l be glad you did in a few years when you achieve freedom from these debts.

This post is part of a yearlong series called 鈥�365 Ways to Live Cheap (Revisited),鈥� in which I鈥檓 revisiting the entries from my book 鈥�365 Ways to Live Cheap,鈥� which is available at Amazon and at bookstores everywhere.聽