If you are in debt you are in the company with most of America. It’s time to develop a plan to get out of debt and stay out for good. You have probably heard to pay off credit cards first starting with the lowest balance then moving to the next one. That’s great advice and you will get to that step, however, there are actually 3 easy, but crucial, steps to paying off debt. First, you must Make A Plan.
1. Make A Plan to Pay Off Debt
This is the first step for anything you do in your personal and professional life.
Gather all of your information including bills, invoices, contracts and everything else that requires a payment. If you have downloaded the 12 Month Household Budget Plan, most of this should be simple to complete.
Make a list of your miscellaneous expenses such as groceries, car maintenance, transportation cost and, social expenses. Add all of your income from your full-time job to any odd jobs income. This is an important step, identify if your total expenses are less than your total income. If they are, move on to the next step!
If your expenses are more than your income, work to isolate which expenses you can pay off or renegotiate down when putting your expenses in a category.
2. Put Expenses in a Category
Put each expense in a category to determine the level of importance and how it will be managed.
- Category 1: Required Expenses which include what you have to pay to maintain your household. Here you will place rent/mortgage, utilities, and insurance.
- Category 2: Expenses which supplements your Lifestyle. This comprises of a car note, major credit cards, student loans, installment loans, and tax payments.
- Category 3: Incidental Expenses to be eliminated first and paid off each month. Here will reside store credit cards, subscriptions, memberships, and medical bills.
3. Stay Focused and Be Consistent
Finally, stay focused paying off debt by eliminating all the expenses in Category 3 because they will have the lowest balances and the highest interest rates.
Gradually move an expense from Category 2 to Category 3 and focus on paying it off. Be consistent and work to remove expenses from Category 2 until there is none remaining.
At this point, only Category 1 required expenses will be left and you will have achieved a debt-free status!
Let PFPF Help You Pay off Your Debt
Maintain your debt-free status by minimizing credit card charges and paying them off monthly. Move balances remaining in your checking account to your savings account each month. Statistics show at least 42% of Americans risk reaching retirement age without adequate savings. Continue to work your plan to avoid being included in that number.
We at Personal Finance Plus Foundation are here if you need some help.