How to Create a Debt Repayment Plan You Can Stick To

June 25, 2022 By: Cox Search

Many of our childhood dreams included a big house, fancy car, and possibly a few adorable kids, not student loans, credit card payments, or unexpected medical bills. There has yet to be a child whose future goal in life when asked, is to “pay off my loans and get out of debt.”

Yet life often turns out differently than we expected. In a world of online one-click shopping, astronomical college tuition, and unexpected expenses, avoiding debt is doubtful. Eighty percent of Americans have some form of debt. Let’s explore how to beat debt at its own game and create a feasible debt repayment plan you can stick to.

Document Your Debts

First, you need a big picture of what you owe. Getting a list of all your debts is easy with a financial app or spreadsheet program to help you. Create a spreadsheet of all your outstanding debts (student loans, car loans, credit cards, etc.), listing their balances, monthly payments, and interest rates.

Prioritize Your Debts

Next, it is time to choose a pay-off strategy by prioritizing your debts and deciding which ones to pay off first. Some options include:

• Debt Snowball Method – The focus is on building momentum by starting small. List your debts by balance, from smallest to largest, and pay off the smallest balance first. Continue making minimum payments on your other bills but focus on sending extra money to the smallest debt until it is paid. The motivating factor of this method makes it a popular choice.

• Debt Avalanche Method – This strategy better suits those who want to save as much money as possible while paying off debts. Lists your debts by interest rate — highest to lowest — and then pay off the debt containing the highest interest rate while making minimum payments on your other debts. This strategy cuts back on the interest you are paying, freeing up more cash to pay down your other debts.

• Debt Consolidation/Refinancing – For those who find it difficult to make consistent on-time payments, consolidating your debts into one personal loan or balance transfer credit card may be your best option. This allows you to combine all your debt into one monthly payment, helping you save money by avoiding missed or late payment fees.

Structure Your Plan

Once you have prioritized a pay-off strategy, it is time to create a structured plan for how to make your strategy work and make paying off your debts easier to manage. Here are some strategies:

1. Stick to a budget. Create a realistic monthly budget that covers necessities, savings, and debt payments.

2. Automate your payments. Set up automated payments through your online banking account to guarantee on-time payments which help lower your balance and improve your credit score.

3. Make extra payments when possible. Contribute unexpected money from a gift or bonus as an additional payment on a debt.

4. Reduce monthly bills. Look for things you can eliminate or cut back on each month like Netflix, cable, or that daily run through the Starbucks drive-through. Request a free energy audit from your electric company to find ways to lower your utility bills. Forego large purchases and use cash instead of credit.

5. Start an emergency savings account. Work to set aside 3-6 months’ worth of living expenses for unavoidable emergencies such as car repairs and doctor bills.

6. Hold yourself accountable. Find one to two people you trust and share your plan with them. Have them check in with you periodically for your debt repayment progress.   

7. Earn extra cash. Make extra money during your free time using your interests and talents: creating and selling jewelry on Etsy, walking dogs, refereeing youth sports, etc.

Stick to Your Plan

Regardless of what repayment plan you choose, don’t give up. A clear strategy, accountability, and celebrating your successes are vital to reaching your goal of becoming debt-free. If you need help putting the pieces of your debt repayment plan together, contact Bell Finance today to speak with one of our financial advisors. Our dedicated team has been giving our Oklahoma community a financial boost for over 45 years and we look forward to helping you too.