Having debt is something that has become more socially acceptable, however, it doesn’t mean that it is always the right answer or even the best solution for your financial plan for your future. If you are looking at reducing your debt over the long-term, it is a great idea if you create a debt reduction plan to help you identify where to start and what your plan of action will look like. You might need to make some budget cuts, even change the way you view credit in the future.
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Creating A Debt Reduction Plan
The idea of creating a debt reduction plan is to look at all your debt and working out the best way to combat the debt and to start paying the money back.
It is not something you can expect to happen overnight, it takes time, it is a slow process and one that you have to work on every single day.
You will have setbacks and the plan is not something that’s set in stone, flexibility important to allow for any changes that you need to take into consideration.
Creating the debt reduction plan is just the first step, it is also one of the most important steps, it lets you see the bigger picture and a future without any debt, which in my opinion is awesome!
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The First Step To Creating A Debt Reduction Plan
- Being honest with what you owe and the amounts you can comfortably pay off each month. You don’t want to make your debt reduction payments so high that you are unable to live, this makes it worse and you will fail before you have started.
- Be honest with yourself as to the amount of debt that you have got. It isn’t going to work if there are other areas of debt that you are not addressing; you need to build a clear picture of what you owe and to whom. Knowing the rate of interest is important too.
- You need to put the debts in order of what you intend to pay off first; obviously, you will need to make the minimum payments every month on all your debts, the debt reduction plan looks at making extra payments on top of this to pay off your debt quicker.
- Setting up automatic payments to cover your minimum monthly payments is a must. This ensures that you are meeting your minimum monthly agreement and will reduce the risk of forgetting to pay the debt and incurring charges, interest and a notice of late payment on your credit report.
Creating A Budget To Formulate Your Debt Reduction Plan
You can’t work out how much extra you can pay off each month without knowing what money you have coming in and the amount of money that you currently need to pay the rest of your bills and expenses, for the current month.
You must create a budget, knowing what money you have and what you can afford to add to your debts in order to pay them off isn’t possible without sitting down and working out your financial situation, by creating a budget.
Remember to include some money each month towards savings, you need to have access to some money in case of an emergency. Life happens and things can and will go wrong, knowing you have some money saved in case of an emergency is important, it means you don’t have to borrow more money and get yourself into even more debt.
The idea of a debt reduction plan is taking small, or as much as you can afford, payments and making extra payments each month. It is a good idea to do this to just one debt, this will pay off the debt quicker and you can move on to the next debt and to start paying extra money to this debt in order to pay it off too.
Seeking Help Sooner
If you are looking to create a debt reduction plan and you are struggling to work out what you need to do, it is important to seek help. Find a charity that offers debt counselling, they might be able to help you organize your budget and help you work out how much you can afford to pay extra towards your debt.
I love the author of this book, what he says about money makes so much sense!
If you are looking to consolidate your debts, make sure you understand all the terms first before signing any of the paperwork. You must make sure that it is going to save you money long-term otherwise it isn’t worth it, you are just making your debts bigger and that isn’t going to save you any money.
What is your best tip for a debt reduction plan?
Therefore, if you have debts and you are looking to find ways in which you can reduce the amount of money that you owe, you need to create a debt reduction plan. One that takes into account your current financial situation and works out the right amount which you can afford to pay extra towards your debt. Remember to automate your minimum payments so that you are not adding more debt when the company adds late payment fees and charges onto your account.
Grab My FREE Budgeting Printable
This will help you sort your daily Spending.