Creating a plan to pay off debt doesn’t have to be too complicated. It’s a matter of sitting down and focusing. It takes less time than you might think. What could you do if you didn’t have a single debt payment in the world? That’s right—no student loans, car payments or credit card bills! For some of you, that would free up an extra R300, R500, or even thousands of Rands a month.
Any amount of debt is overwhelming. And when something’s overwhelming, we tend to procrastinate. We’re human, after all. Sometimes the problem seems so big that the main obstacle is knowing where to start.
People have dozens of questions about the process. Which debts should be paid off first? How much should you pay each month to get out of debt? Is the minimum payment enough? How long will it take? Will it be hard? What will you have to give up?
Following these steps will give you the direction you need to pay off your debt for good.
Figure out how much Debt you have
The first step in creating a plan to pay off debt is to calculate what debt you have, what you owe, and how much you owe.
Take out a piece of paper, or use the FREE Debt List worksheet . Write down who you owe, the amount you owe, the minimum payment for each debt obligation. Include the interest rate (list from highest to lowest), and your monthly due date. Once you have a clear picture of your debt and depending on your priorities, you might decide to only focus on the “bad” debt. This debt includes things like credit cards and small personal loans. These debts will most likely have the highest interest rates as well.
Put together a Debt Plan
A debt plan doesn’t have to be complex.
All you need to do is rank your debts, either by interest rate or by the balance or some other criteria that you choose.
Which Debt Should You Pay Off First? You should choose the method that will keep you motivated to pay off your debts. If optimizing your payments is most important, then the high-interest method is best. This is the Avalauche Method. If you become unmotivated by paying a large debt for a long period of time, then the smallest debt method will be better for you. This is the Snowball Method.
With this method you pay off bills in order of smallest to largest, regardless of interest rate.
But it’s more than a method for paying off bills. The debt snowball is designed to help you change how you behave with money so you never go into debt again. It forces you to stay intentional about paying one bill at a time until you’re debt-free. And it gives you power over your debt. When you pay off that first bill and move on to the next, you’ll see that debt is not the boss of your money. You are.
Using this method, you pay off your debts from highest interest rate to lowest interest rate. You tackle the higher interest debt first, regardless of the balance. Using this method makes mathematical sense because you will pay less interest overall. By doing it this way, and because you are saving more in interest, you will be able to pay off your debt faster.
Don’t beat yourself up if you make mistakes or get discouraged if you run into setbacks. The most important thing to remember is to pick yourself up and continue with your plan as soon as you can. Throughout this process, you should develop positive financial habits. Debt can be overwhelming, but having a plan can relieve some stress and give you hope. Today, take the first step in tackling your debt and create a plan to live debt free.