Making a plan to pay off your debt can be a difficult endeavor, especially if you do not have a lot of experience with handling finances. A perfect example of this is a college student who is enticed into opening a credit card to pay for their living expenses and charges a significant amount of debt without realizing it. The faster that you deal with the debt, the better off you will be in the long run. When making a plan to pay off your debt, make sure that you include these steps.
Calculate Your Total Debt
Knowing what your total debt load is will make it much easier to create a realistic strategy for paying off your debt. Make a list of all your creditors that you are aiming to pay back with your payoff plan and the amounts that you owe to each of them. Totaling these amounts will give you a rough estimate of how much debt you are actually dealing with, less any future interest that will be charged to the accounts.
Rank Creditors By Highest Interest Rate Charged
The next step is to rank all of your creditors by the amount of interest they are charging you. You will pay less in interest over time if you start by paying off the debt with the highest interest rate first. Taking the time to rank the creditors gives you a roadmap of how to approach paying off your debts.
Make A Payoff Plan
Now, you should make your plan to pay off your creditors. Your plan should include the minimum payments required for each of your accounts plus an additional amount that you will be paying on the account with the highest interest rate. Paying as much as you can afford toward the debt will the highest interest rate will help you pay off your debt as quickly as possible.
Consider Consolidation
If you find that you have a lot of debts that have high interest rates, you may want to consider consolidating your debts into a single loan with a lower interest rate. Consolidation has a number of benefits, including lowering the amount that you are paying in interest, lower minimum payments, and lowering the number of payments that you must make each month. Many banks and credit unions offer loans that can be used to consolidate debts to borrowers that have a good credit score and repayment history.