Create a List of Your Debts
The first step in a debt elimination plan is to create a list of all your debts. If you know all your credit card accounts and loans, write them down or type them out. If you are not aware of all your debts, an easy way to identify them is to use a credit monitoring platform to get your credit report. You can obtain a free credit report from AnnualCreditReport.com.
Once you have compiled your list, place each account in a table next to the current balance of the account, the credit limit, and the minimum monthly payment. You may also want to include the interest rate and payment status (for example, whether the account is in good standing or past due).
Analyze Your Spending
It’s time to take a close look at your spending habits. This is the first step in budgeting, which is the next step in your debt elimination plan, as it allows you to see how much you are actually spending each month, rather than what you think you are spending.
Create a Budget
After identifying your spending habits, you are ready to create your budget. A basic budget shows two things: how much you have spent and how much you have earned. The goal is to finish each month with more than what you earn.
Plan How to Pay Off Debt
Once you have your budget, it’s time to decide how to eliminate the debt from your life. There are two popular methods for paying off debt, which are the snowball and avalanche methods. With either one, you can apply any extra money you have each month toward the smallest balance of your debt while making the minimum payments on the other balances.
Track Your Debt Elimination Progress
Tracking your debt payments and watching the balances decrease can be rewarding, especially if you set goals and small milestones along the way. Even if you experience setbacks, you will be able to see how far you’ve come and how much you have paid off to stay motivated to continue your debt repayment journey.
Seek Help
If you’re having trouble covering your debt payments, there are professional resources available to help you. Debt relief companies offer services to dispute errors on your credit report, but not all of these services are reliable. In fact, some can actually damage your credit score. It is recommended to research debt relief companies before partnering with one. Credit counseling programs provide education and resources to help you find ways to pay off your debts. Some credit counseling programs may be free, while others may charge a fee.
Tips for Eliminating Debt
Eliminating debt may take time, but with hard work, you will get there. The following additional tips may help you as you set up and work on your debt repayment plan:
* Make sure you have an emergency fund available before funneling all extra money into debt repayment.
* When paying down accounts, start paying toward the other debts.
* Keep track of your credit score as you begin to pay down your debt. Watching your credit score increase can be excellent motivation.
* If your income changes during your debt repayment plan, be sure to reassess your budget.
* After your debt is paid off, continue to use your budget to help you stay debt-free.
Source: https://www.thebalancemoney.com/debt-elimination-plan-2385990
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