How to set up a debt payoff plan and stick to it

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If you’re facing a mountain of debt, the first thing to know is that you’re far from alone. U.S. consumer debt has reached $13.86 trillion. No matter the amount you’re dealing with, it can feel impossible to tackle. However, a solid debt payoff plan is key to finding a debt-free future and taking solid steps toward personal financial strength.

What is a Debt Payoff Plan?

A debt payoff plan takes a comprehensive look at all the debt you owe and organizes it into a structured, consistent routine to pay it all off. Since debt is overwhelming, a successful payoff plan transfers it to manageable steps. The plan will consider all of your debts, your income, and your monthly budget.

The end goal of a plan to pay off debt is to make sure you have a financially secure future. Living in debt means you’re less likely to be able to purchase things you want or even live with the quality of life that you desire. Once you pay it off, you’re giving yourself the freedom to choose how money affects your life, rather than letting it control your well-being.

How to set up a debt payoff plan

List your debts

Your financial plan to pay off debt needs to start with understanding everything you owe. Being able to see it in one place will help you understand how to move forward.

To figure out all your debt, start with your credit report. You can do this online through many free resources, such as Credit Karma, Equifax and Experian. On your credit report, you’ll see a list of all your active accounts. From that list, contact each creditor and find out the balance that you owe. Your credit report will include everything from credit card accounts, student loans, mortgages and personal loans, so you shouldn’t have to search hard to find all the creditors that you owe.

Prioritize your debts

There are a couple of ways you can prioritize your debt, and the method you choose may depend on your monthly budget, income, and goals.

The first method is to prioritize by interest rate. List your debts by highest to lowest interest rate, and make a goal to pay off the higher-interest debts first. This method will save you more money in the long-run. However, this method could be placing your highest balance as the first to tackle. For many people, this could feel the same as attempting to tackle the balance as a whole and may feel unrealistic. If eliminating your interest is a higher priority for you, stick with this method. However, make sure you consider your personal discipline and monthly budget.

If you’re wary of the first method, you can try a different method that instead prioritizes your debt by balance. After listing your debts by the smallest balance first, you’ll start with a lower financial commitment. This method is especially helpful for those who feel the most overwhelmed by their debt. You’ll be starting small and working your way up to the highest amounts.

Find extra money to make payments

If you’ve prioritized your debts and still feel like you can’t tackle more than your minimum payments, you may need to consider actively earning extra money. This may include extending your hours at work (if possible), selling personal items that you don’t need or even adding a secondary job. If you’re worried about burning out fast from extra work, try to find flexible options. For instance, job boards like Fiverr, Upwork and Workana exist to offer short-term gigs that can provide extra money on your own time. Keep in mind that any extra work you take on will be temporary, so it’s important to use all the extra cash toward your debts.

Knock out one debt at a time

No matter how you’ve chosen to prioritize your debt, take it one step at a time. This way, you can pay more than the minimum amount owed and pay it off faster.

For example, say your first debt has a minimum payment of $100. Chances are, you can look at your budget and free-up a little more money to be paying more than the minimum, say $120. For the time being, all you’ll need to do is focus on paying the $120 on this debt as well as the minimum payments on your additional debts. Once this initial debt is paid off, you can then roll that $120 payment onto your next debt, so you don’t feel like you’re searching for the money to continue paying off each debt.

Tackling your debt one at a time is not only easier to manage, but it creates a dedicated budget that you can use each step of the way.

Start building up your savings

If you can, your monthly budget should also allocate some money for savings. This can be the most difficult part for many people — you may already feel like you’re stretching yourself thin with paying above the minimum on your debt. However, having savings can ensure that you’re less likely to fall back into debt. You’ll have a safety net ready to turn to instead of another credit card account or loan.

To start, consider areas where you can be saving more. You can call your creditors and see if they’re willing to give you a lower minimum payment. Also, consider cutting down your bills. Are you paying for cable when you could pay for wifi and stream your shows? Would you be willing to cut down your cell phone bill to just the basics?

Other savings options include those that you don’t necessarily see. For instance, could you be gaining more interest from your bank? Consider transferring to an online bank account, where the interest rates tend to be higher. Also, consider your retirement fund if you have one through work. Ask yourself if you could allocate a bigger percentage of your paycheck toward that account.

Lastly, take a good look at what you spend each month. Other than bills, there may be other areas you can cut back. Remember that paying off your debt can include many hard decisions, but it’s all temporary and will help you live the way you want in the future.

9 Tips to Stick to Your Financial Plan to Pay Off Debt

Once you’ve created a debt payoff plan, sticking with it can be the hardest part. Follow some of the tips below to make sure you’re giving yourself the best chance at success.

1. Make sure your payoff plan is realistic

A debt payoff plan should make you feel less overwhelmed by your debt. Feeling anxious before you’ve even started may mean it isn’t realistic for you.

Consider changing your priorities. If you’ve tried tackling your debt by interest rate, prioritizing by smaller balance first should be more manageable. Furthermore, you should always be able to afford necessities like food and rent. Consider if your monthly budget is unrealistic, and change accordingly.

2. Track your progress

Keep your own tracking method so you can see your monthly progress. Visualizing it will help keep you motivated to continue with your payoff plan. This may be in the form of an app, or it can be a manual method like a spreadsheet.

3. Make extra payments when possible

With any debt payoff plan, you should make a commitment toward funneling extra money toward your debt. This step will take a certain amount of discipline since it can include money you weren’t expecting. Say you make a personal sale, gain more money at work, or gain money through a gift. You may be tempted to put this money toward your daily life. However, consider the fact that this is money wasn’t already a part of your monthly budget. You should be able to go about your life without it, so it should be allocated toward your debt.

4. Make yourself accountable

Let your friends and family members know that you’ve made a debt plan, and find one or two people who you can share the full plan with. These should be people who you may admire for their financial strength, or people who you know can keep you accountable. They should be able to review your plan and periodically check in to make sure you’re sticking with it. They may even be able to offer advice if you’re struggling with certain aspects of the plan.

5. Stick to a predetermined budget

Throughout the process of creating your payoff plan, you should have a monthly budget that includes the money you need for necessities, an amount for savings, your debt payments, and the amount you can allocate to everything else. Your budget may change if you find you’re able to allocate more money toward your debt or savings, but you shouldn’t alter the money you’re paying for everything else. Sticking with a budget that works will give you the highest chances of success.

6. Stop taking on more debt

Paying off your debt means you may have to put off big purchases for a period of time to avoid taking out more loans. During this time, you should also stop using credit cards, even for smaller purchases. Working with the cash you have simplifies your debt payments and is the best way to avoid taking on more debt.

7. Remember why you’re paying off your debt

Whenever your debt plan feels difficult or you feel unmotivated, just remember why you’re paying it off. Your individual goal may be unique, but everyone who pays off their debt will be able to achieve a better future, more freedom, and less stress.

8. Get inspired by success stories

Always remember that you’re not alone. The statistics behind debt are shocking, but it proves how easy it is for everyone to incur debt in all sizes. With the large amounts of people in debt, this also means there are large amounts of people who’ve overcome. Look for these success stories to help keep you motivated.

9. Keep the end goal in mind

Through it all, always keep your goal in mind. Write it down and look at it every day at the same time that you review your payoff plan and progress. Perhaps your goal is to buy a home, or have enough money to start a family with less stress. This goal is personal to you and can help guide you every step of the way.

The Bottom Line

Paying off your debt isn’t easy, but it’s absolutely achievable with a structured and realistic debt payoff plan. The secret to success is organizing your debt, starting small, holding yourself accountable, and maintaining your personal goals. It may not happen instantly, but after a certain period of time, you’ll be able to live debt-free and with the freedom to make stronger financial decisions.