Getting into debt is easy, but getting out of it isn’t as easy. You can’t wish your way out of debt. You need a plan. You need a solid plan. But not to worry, a debt repayment strategy isn’t rocket science. You can accomplish your goal of being debt free by religiously following all five of the following steps.
1. Stop Building New Debt
It is impossible to pay off your debt if you continue to accumulate new debt. If you’ve got credit card debt you need to cut up your credit cards so you won’t accrue any new debt. Get a total of everything you owe and note that number down. Every single month, your debt total should be decreasing not increasing.
2. Change Your Spending Habits
To pay off your debt you need to have some extra money every month to go toward your debt. This means you’ll need to make some serious changes to your spending habits. No more premium coffee from StarBucks. McDonald’s coffee might not be as good, but it’s only a dollar. Bring a homemade lunch to work instead of spending 7 bucks at the cafeteria. There are countless changes you can make to your daily life that will reduce your monthly expenses.
3. Minimum Payments
The credit card companies will lure you into making the minimum payment every month. This number is what they want you to pay because it means they collect some money for the balance and a lot of money for the interest. The last thing they want you to do is pay more than what you owe. Yet that is exactly what you need to do. Also, don’t be fooled into thinking you can only pay once. As soon as you get paid every two weeks, make a credit card payment.
4. One Debt At A Time
If you have 5 different debts it can seem like a daunting task to pay off all of your debt. Therefore, find the smallest debt (perhaps a $500 personal loan) and tackle that one first. By doing this, it will remove one burden from your life and give you the confidence you need to keep going. Continue paying off your next smallest debt until you only owe one. By that time you’ll have the experience and knowledge of how to pay off debt.
5. Negotiate Your Debt
In many cases, what you owe is negotiable. It is becoming very common for debts to default. Companies know this so they will want to work with you to ensure your debt gets paid. Often times this means lowering your interest rate. Other times it means lowering your monthly payment and extending the term. In rare cases they’ll even lower the amount you owe. For example, if you owe $1,500 you can contact them and tell them you only have $1,000 and that you can pay them that, otherwise not pay them back at all. If it’s an old debt they may agree to your offer.