At one time your debt seemed small and manageable, but as time has gone on it has only gone up. You know you need to get out of debt and finally take it seriously but where do you start?
What Is A Debt Reduction Plan?
You need a debt reduction plan, but what is it?
Put simply a debt reduction plan is a set plan that you are following to get out of debt.
Other than just a desire to get out of debt it’s an actual plan.
Think of it as trying to lose weight. You know you need to eat healthily and exercise, but until you actually start eating healthy and exercising you aren’t going to lose weight.
Starting Your Debt Reduction Plan
Before you can create your plan you need to know how much you are spending. There are several ways to go about this.
You can guess, and adjust as time goes on and your “guess” is found right or wrong.
You can go through your previous bank statements and see how much you have already been paying on things.
Or you can start from scratch, and write down everything you spend for a month until you feel comfortable with the numbers.
Once you have your numbers and you know what you’ll be spending, stick to it. Stop impulse purchases, stop buying things you don’t need, stick to the plan.
Which Debts Do You Pay Off
There are two rules of thumb when it comes to debt payoff, the debt snowball, and the debt avalanche.
The debt snowball is where you pay the minimums on all of your debt and any extra you put towards the debt with the lowest balance. This gives you quick wins that help you stay motivated.
The avalanche method you still pay the minimums but instead of paying down the smallest debt you pay the debt with the largest interest. This debt is for those who are more encouraged by the numbers instead of quick wins of paying off debts.
Increase Your Income
After you have your plan in place you need to increase your income.
The easiest way would be to ask for overtime at your job. Another would be to find a second job.
In the world we live in finding a second source of income is easier than ever. With rideshare, task rabbit, and freelancing where you can work anytime, anywhere you can find some ways to make extra money.
A word of caution here.
If you start making extra money to pay down debt, actually pay down debt.
Don’t go out to eat, or buy those shoes you’ve been looking at, make sure you pay down the debt.
Most importantly, continue to be patient.
You didn’t get into debt in one night, odds are that it took years for you to get into debt. It’s going to take time to get out.
Celebrate little wins, it’s ok to not spend all your money on debt as long as you spend most of it on it.