Everyone’s eager to eliminate the nagging pressure of debt and its interest payments. But that’s a tough problem to escape. The average credit card balance among indebted Americans (about $15,000) has remained steady for years.
The debt challenge can be so daunting – especially if you face large or multiple debts – that some people think it’s unbeatable. The good news is if you take time to assess your debts and plan a strategy, you can set yourself on a realistic path to financial freedom.
Here’s an action plan you can use to pay off debt. (For even more debt-payoff info, see our free ebook: The Debt Management Guide.)
1. Understand your debt. It’s important to get a handle on where you stand in order to start addressing your debt obligations. Figure out where you face the highest interest rates and monthly payments, which accounts are the largest, etc. This can help you decide which debts to concentrate on first.
2. Set a specific goal. It’s a lot easier to stay motivated and develop a realistic plan when you decide to be debt-free in “two years” rather than “someday.” So after you evaluate your situation, pick a goal date and start paying off those debts!
3. Adjust your financial lifestyle. There’s ultimately no magic formula for paying off debt. You simply have to spend less so you can devote more of your income to debt payments. It might seem painful, but living debt-free makes it worth giving up some luxuries for a while. Get organized by creating a budget and sticking to it.
4. Determine your plan of attack. There are several tactics for paying down debt, including:
- Looking for a better structure. It might be advantageous to consolidate multiple debts into a single loan. And you often can negotiate a better interest rate with creditors who would usually rather see you work out revised payments than default.
- Eliminating entire debts one-by-one. If you can knock off one small debt completely, then move on to the next one, you’ll simplify your life and gain confidence that the bigger goal is possible. This concept (called The Debt Snowball by author Dave Ramsey) has worked for countless people.
- Pay more than the minimum. Paying only the basic amount due each month will keep you in debt for years to come. Find a way to pay more toward the balance, and you’ll save loads of time and interest payments.
5. Celebrate wins and plan for the future. When you meet a goal, whether it’s paying off an entire card, or sticking to your budget for three months in a row, take a moment to congratulate yourself. Celebrate by sharing your accomplishment with friends and family.
Looking at a mountain (or even hill) of loans can be intimidating, but don’t let that stop you from addressing them. Start your action plan today. The sooner you tackle those loans, the sooner you can start living without the burden of debt.
For more details and more debt-payment tactics, download our debt payment checklist.