List all your debts
The first and foremost step involves gathering all necessary documents indicating precisely how much you owe. Get to know what the interest rate you pay on each loan and credit card is? And how much you currently divert to debt reduction each month?
Define your debt goals
Underlying crucial questions are to be answered, such as, do you want to reduce debt to a specific level or be entirely debt burden free? And what is your timeline? In order to redress such issues, it is essential to calculate the necessary amount which is demanded to be paid every month to meet those goals. After figuring, formulate plans to accumulate and earn more money by availing practical tips such as getting a part-time job, cutting down expenses or by turning a hobby into an extra source of income.
Consider consolidating or refinancing
Explore new opportunities of consolidating your debt by availing a home equity loan or a low rate credit card. Upon doing so, you can significantly minimize overall monthly interest payments and allowing easier payment of the principal amount. Before determining such method, be sure to read the fine print as some offers consist of high-interest charges. It only makes sense to refinance your mortgage considering interest rates are low. If you intend on staying in your home long enough to cover any refinancing costs, you can reduce your monthly payments and keep your payments the same, but remember to pay off your mortgage sooner.
Commence paying your debt
Remember to pay your highest interest debt first since it is a significant financial drain. Another effective method is the snowball method, which involves paying off debt with the smallest balance initially while making minimum payments on your other debts. After the smallest debt is settled, continue to tackle the debt with the next lowest balance. Any extra funds are then to be diverted to the highest interest debt. This effective strategy can show rapid progress while giving you the momentum and motivation to stay on track.
Plan your next financial goal
After you’ve accomplished your debt reduction target or are in the process of it, you can take the next set of steps to keep your debt manageable. Learn to manage your cash flow by comparing expenditure with revenue with an aim to ensure sustainability. Formulate a rainy day fund consisting of at least six months’ worth expenses to reduce the chances of availing a loan or debt in the future in case your financial condition worsens. Saving even a small amount can make all the difference in your financial state.