Debt can be a hefty burden to bear, and at times, it may feel like you cannot overcome it. Crafting a personal debt management plan may be a good option for anyone who feels like they are drowning in debt. Doing so takes time, effort, and energy, but the overall result is peace of mind and a debt-free future. For those looking to create their own debt management plan, adhere to the following steps for best results.
Calculate Your Debt
If you do not know how much money you owe, this is the first step to take. You should add up all the debt that you have incurred, including student loans, credit card debt, home loans, medical bills, and more. In addition to learning the total amount of money you owe, you should also compile a list featuring each individual debt, taking care to document the amount, the lender, the interest rate, and the minimum payment required each month. Contact the lenders if you feel that the information you have is inaccurate or outdated.
Decide on Your Approach
There are two primary effective means of attacking debt: the avalanche method and the snowball method. Depending on your financial situation as well as the debt you have, each method can be effective. The avalanche method entails tackling accounts with the highest interest rate first; doing so will help lower the amount of interest that is accrued over time, but it may take longer for you to feel a sense of accomplishment by eliminating an account. The snowball method requires you to tackle the smallest accounts first. This approach can help individuals feel more comfortable with their situations in a shorter amount of time, and it can also free up money sooner when small accounts are eliminated.
Avoid Accumulating More Debt
This step may seem obvious, but it is somewhat difficult and can have negative side effects. Closing your credit cards as you pay off your credit card debt may seem logical, but doing so can actually harm your credit score. As long as you are careful with how you spend your money and which methods of payment you use, avoiding adding more debt to your existing list should be relatively simple without necessitating drastic action. You should also be careful to limit your existing expenses; the more money you have to spare, the faster you can pay off your debts.