Whether you’re an individual or a business, taking inventory of your debt is a crucial part of getting out of debt. It can help you prioritize which debts to attack first and create a strategy for paying them off. The last thing you want to do is to have to file for bankruptcy. A bankruptcy attorney in Harrisburg, PA will tell you that there is a lot that goes into debt management to avoid bankruptcy. Bankruptcy itself is a daunting experience and leaves you in a financial struggle. But sometimes clearing your debts somehow can be a starting point to be debt free.
This is an important step in reducing your debt, and you should do it regularly. It can be challenging to see all of your debt listed in one place, especially if you’re viewing in your banking app.
1.List all of your debts.
Taking inventory of your debt is the first step in creating a debt elimination plan. Getting a clear picture of your debts will help you understand where you’re spending money and make informed decisions about your budget.
List all of your debts in a spreadsheet and make sure to include the creditor, how much you owe and what the interest rate is on each. This will give you a clear idea of how much you owe overall, and which accounts are most threatening.
The next step is to create a budget and categorize your monthly expenses into three buckets: necessities, nonessentials and savings/debt payments. Ideally, you should limit your expenses on these categories to 50% or less of your income.
Now that you have a list of all of your debts, it’s time to start paying down these balances. This will help you see your balances decrease and hopefully improve your credit score. It will also help you get on track with your debt elimination plan.
2.Create a budget.
Budgeting is a great way to keep track of your spending and save money toward your financial goals. It is especially helpful for people who are trying to save for a vacation, emergency fund or retirement.
When you create your budget, first take inventory of your income. This includes the amount of money coming in from a full-time job, side hustle or government support.
Next, determine your expenses by listing all the regular monthly bills you pay, such as rent or mortgage payments, cell phone and utility bill. Then, list your variable expenses, which change month-to-month and may include groceries, gas and entertainment.
You can use a spreadsheet to create your budget or download an app like Mint or You Need A Budget (YNAB). Once you have created your budget, you can set a timeline and stick to it.
3.Create a repayment plan.
Taking inventory of your debt and creating a repayment plan is a key step in getting out of debt. This means listing all of your debts, including any interest that you might owe in the future, and making a realistic budget that will allow you to pay them off over time.
Depending on your situation, you might need to consider more than one type of repayment plan. These options can include a consolidation, which combines multiple old debts into one new loan at a lower interest rate, and a graduated repayment, which allows you to make monthly payments that are based on your income.
Once you have a repayment plan, write to your creditors and ask them to freeze interest and charges while you pay off your debts. This will help you save money on interest, so you can make a larger payment towards your debt.
4.Pay down the debt with the highest interest rate first.
One of the best ways to save money on interest is to pay down your debt with the highest interest rate first. This is called the avalanche method and will help you pay off your credit card debt quickly and save on interest over time.
To use this strategy, make a list of all your debts and order them by interest rate. Once you have the list, start by paying off the debt with the highest interest rate, using any extra funds you can spare to do so.
Once the debt with the highest interest rate is paid off, roll over your extra payment to the next debt on the list, and so on, until you’re completely free of credit card debt. This is a great way to make sure you never fall behind on your debt payments again, and it’s also an important step in building your emergency fund. The most important thing is to take inventory of your debt and create a debt repayment plan to get you on the road to financial freedom.
