7 steps to managing and paying off debt
1. Take account of your accounts.
First things first: Make a list of all your outstanding debts. Include the interest rate on each so you’ll be able to determine which ones are causing you the most financial pain.
2. Check your credit report.
Request a copy of your credit report from one or more of the three credit-reporting agencies. This will help you make sure you haven’t forgotten about an outstanding debt. Plus, it’s always a good idea to make sure there aren’t accounts on there you don’t recognize.
3. Look for opportunities to consolidate.
If you have multiple student loans, can you consolidate them into one loan with a lower interest rate? Do you have access to a low-interest personal loan that you could take out to replace high-interest credit card balances?
4. Be honest about your spending.
If your debt feels overwhelming, it’s worth taking an honest look at what you’re spending each month. Are there expenses you can cut back on or eliminate? Part of reducing your debt is limiting the additional debt you take on.
5. Determine how much you have to pay.
Once you’ve consolidated, determine how much you have to pay each month by noting the minimum payments and put the total into your budget. If the amount is more than you can manage in your budget, you may need to contact lenders to see about arranging different terms.
6. Figure out how much extra you can budget.
Once you have the baseline of how much you have to pay each month in your budget, determine how much extra from your budget you can devote to debt reduction. Hopefully, those expenses you reduced give you a little more discretionary money to put toward this goal.
7. Determine your debt-reduction strategy.
How you attack your debt is up to you. The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. The first will save you more money over the long run, but the second can help you keep momentum and see progress. Either way, you’re taking steps in the right direction, so stick with your plan!