Last week's blog talked about categorizing your debt. Now that you've thought about what kind of debt you have, let's talk about how to tackle your debt and set you on a path towards financial independence!
The first step to tackling your debt is putting together a debt snapshot. A debt snapshot is a list of all of your debt and the minimum payment due for each.
Here is an example of a debt snapshot:
A debt snapshot allows you to see where you are today and what you're working with. To make the most of your debt repayment plan, commit to not adding new debt.
There are many ways to tackle your debt, some prefer to tackle largest interest first but my favorite method for debt repayment is Dave Ramsey's Debt Snowball Plan. By tackling your smallest debt first, you will be able to repay that amount the quickest. That feeling is so rewarding it motivates you to work harder and keep going.
The idea with this plan is you make every minimum payment as planned, every month. Any extra income that you get, put it towards that smallest amount. This will allow you to pay that first debt as quickly as possible.
Once you pay off the first debt amount, take that minimum payment and add it to the next debt's minimum payment each month.
You have already learned to live without that money every month because you have been paying it towards the smallest debt amount. Make the most use of that extra $20 per month and pay it towards the next minimum payment due! This will allow you to pay down the next debt more quickly.
Build your debt payments into your budget. This will allow you to see how your debt payments impact the big picture of your monthly finances and set realistic goals each month.
Try this method with your debt and tell me how it goes.
What methods have you used to pay off your debt? Let me know in the comments!
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