Paying off debt can feel daunting. While there may seem like many options and paths to take, the best one for your unique situation can be hard to choose. Because of this, it’s important to break down the process and start small. Like a journey of a thousand miles, it may seem long, but it begins with a single step.
Starting to pay off debt isn’t as simple as sending a check to your lender. By breaking down the steps you need to take, you can make the process less overwhelming and set yourself up for future financial success.
By starting off strong, you can make your road to debt repayment more sustainable and manageable, and start chipping away at your balance without feeling defeated, lost or burned out.
Consider these steps to pay off debt.
1. Evaluate your balance and budget
When getting ready to pay off your debt, it’s important to evaluate your debt balances and your budget. This will help determine how much you can pay, how you can balance your budget and which balances to prioritize.
When looking at your debt balance, may want to consider:
- The amount of each debt balance
- The age of each debt
- The interest rate of each debt
- The minimum monthly payment required for each debt
The sum of your minimum monthly payments will give you a baseline of what you can expect to pay each month. However, ideally your payment strategy will involve making larger payments than your minimum, which will be covered in more detail in the next section.
Once you’ve evaluated your debts, look at your budget and how much money you’re bringing in each month. This will help you determine how much you can contribute toward paying off your debt. Your needs — such as rent, utilities and groceries, will come first, while your wants — such as eating out, vacations and discretionary spending — will probably require some cuts.
This isn’t to say that you should cut out all of your “fun” spending.
Giving yourself room to enjoy what makes you happy is an important part of keeping yourself grounded and committed as you pay off your debt. If you don’t give yourself permission to buy yourself a coffee now and again, or go to a night out with friends, then you might burn yourself out in the long run. This is why you should consider leaving a bit of wiggle room in your spending for “fun” things.
2. Figure out a repayment plan
Once you’ve determined how much money you’re able to contribute toward your debt repayment, it’s time to figure out a repayment plan.
While it might be tempting to make only the minimum payments or to make a large payment toward whichever debt is the biggest, deciding where your payments go will help you pay down your principal faster, saving you on interest and helping you pay off your debt in a sustainable way.
There are two main strategies that can help you pay off your debt.
- The snowball method involves making minimum payments on all your debts and making extra payments toward your smallest debt, allowing you to pay it off quickly. Once the smallest debt is paid off, you can roll your payments into the next-smallest debt until it’s paid off, and so on.
- The avalanche method prioritizes your extra payments toward your highest-interest debt, which can save you on interest in the long run.
Whichever method you choose will depend on the debts in question, your interest rates, how much extra you can contribute to your payments and whether you have any debts that have gone to collections. Using a debt payoff calculator can help you determine which strategy will pay off your debt more quickly and how much you can save on interest.
By building out a repayment plan, you can put a finish line on your debt repayment, giving you a goal to work toward and a sustainable way to pay off your debt that won’t leave you burned out or broke.
3. Build your support system
A key part of paying off debt is making sure you have a support system in place. Finding help to pay off your debt will make the journey more manageable and help you feel less alone. Here are some ideas to build a strong support system.
Next, you can expand your network by finding programs that offer financial assistance and advice.
- The Consumer Financial Protection Bureau (CFPB) offers financial education around building a budget, calculating your debt payoff and more.
- The Foundation for Financial Planning also offers free financial planning for families and individuals in need.
- Federal and local programs such as the Supplemental Nutrition Assistance Program (SNAP) and child care assistance programs can also help you save on costs by providing credits and financial assistance.
If you’re working with a debt settlement company, you may have access to additional resources. National Debt Relief, for example, offers financial advice and budgeting assistance for its clients.
4. Put a safety net in place
One of the most important pieces of a sustainable debt repayment plan is having an emergency fund in place.
While it may seem counterintuitive to have money sitting in a bank when you’re trying to pay off debt, an emergency fund can be a crucial safety net in an unexpected event. If you lose your job, have an unexpected car repair, a medical emergency or other urgent financial need, an emergency fund can help you cover your expenses and prevent you from going into further debt or missing any payments.
While it’s recommended to save three to six months’ worth of living expenses in an emergency fund, you can start off small. As you pay off your debt, make small contributions to your fund and grow it over time. The equivalent of a few monthly debt payments — even if it’s just $300 — can be a welcome reprieve when the unexpected rolls around.
5. Keep your options open
As you prepare to pay off your debt, it’s important to be aware of the options available to you when it comes to managing your debt.
If you’re carrying multiple debts, you might consider debt consolidation. By consolidating your debts into one balance, you can bundle your multiple monthly payments into one payment, which can be easier to manage.
Another option to consider is debt relief. If you have unsecured debts, such as credit card debt or a personal loan, you may be able to work with a debt settlement company like National Debt Relief (NDR).
NDR helps clients by negotiating down their balances with their clients’ debt holders, reducing the overall debt owed and speeding up their payoff time. This helps to build a sustainable repayment plan for remaining balances and settlement fees.
One thing to keep in mind is that debt consolidation may increase the overall interest you’re paying and come with origination and balance transfer fees, so make sure you ask about those.
Debt relief companies integrate a fee into your overall payment, though your ending payoff balance will still be less than you currently owe. The other thing to consider is debt relief may impact your credit score, though as you start paying off your balances, you have the opportunity to rebuild your credit score.
Both options can help you in your repayment journey, and are worth looking into.
6. Make your first payment
Once you’ve gotten your finances, repayment plan, support system and emergency fund in place, you can get ready to make your first debt payment.
First, confirm you’re using a payment method your lender approves of. If you’re mailing a check or money order, be sure it will arrive at the time specified by your payment requirements. If you’re able to pay online, consider setting up automatic payments so you don’t miss a payment. Verify that your payment has gone through — you can always request a receipt for your records.
Once everything is in order, take a moment to celebrate! You’ve just made the first step toward being debt free. While it may feel far away, you’re closer to paying off your debt than ever before.
Keep going, and that day will arrive sooner than you think.
Paying off debt can be a journey. By starting off with a solid plan, establishing your financial goals in advance and building a budget you can stick with, you can set yourself up for success when you take the first step toward paying off your debt.
If you want to learn more about how to manage your finances with debt, check out Bankrate and National Debt Relief’s ongoing article series about all things debt. Watch this space for tips, tricks and exclusive stories from readers like you and their debt repayment journeys.