An effective debt repayment plan is one of the tools that you can use to help you achieve debt freedom. And if you look at the latest statistics, you will realize that a lot of people will probably benefit from a repayment plan.
Apparently, American consumers have an average of $6,506 in terms of credit card debt. The report revealed that their credit card debt is caused by different reasons. Some said their debts are an accumulation of basic necessities like food, rent, and utility spending. Others say their medical bills caused their debt to spiral out of control. Then there are people who admitted that non-essential expenses caused them to land in debt.
No matter what the reason is, you cannot deny the fact that there is a need to pay off these debts. Your creditors and lenders will not really care how you use the money borrowed. All they will care about is that you pay them back.
Of course, paying it back is easier said than done. There are many reasons that will make it challenging. However, one of the things that you will struggle with is sustaining the payments. Debt relief takes time to complete. You do not know what will happen between the time you start making payments until the last one. It is important for you to ensure that whatever happens, it will not compromise your debt payments.
This is where a debt repayment plan can be quite helpful.
Qualities of an effective debt repayment plan
We never know what will happen in the future but if you have a plan, you can anticipate what will happen. Whether it is positive or negative, knowing how the whole journey should go will help you prepare for what you could encounter. This is why a plan can be quite beneficial. However, it will only be helpful if it has the right qualities.
To make your debt repayment plan effective, here are the important qualities that it should have.
Aligned with your budget plan
First of all, you have to make sure that it is aligned with your budget. According to reports, 7 out of 10 Americans are using a budget. This is good because you need a budget plan to help you manage your finances. It shows your income and expenses. By aligning your debt repayment plan with your budget, you can make sure it is covered by your income. If not, then you have to adjust your expenses so your income can accommodate your debt payments. That way, you will never miss out on payment because it will always be funded.
Includes all possible debts
Another thing that you have to do is to ensure that your debt repayment plan includes all the credit accounts that you need to pay off. Go through everything thoroughly so you do not miss anything. This will give you an overview of your credit obligations. Based on debt statistics, almost all types of debt reached an all-time high – credit card, mortgage, student loan, and auto loans. Only personal loans were not described as an all-time high – but reports revealed that it is one of the fastest growing debt. If you have all of these debts, you need to make sure that every single one is listed. Include the balance, minimum payment, due date, etc.
You should also make sure that you set realistic payments in your debt repayment plan. Sometimes, we tire of juggling multiple payments so we want to get rid of debt as fast as we can. The best way to do that is to set really high payments each month. Although your budget may be able to cover it, you have to check how much you are sacrificing on your other expenses. Is it making your life feel too restricted? This may be something that you can live with for a few months but you cannot do it for a long time. It will make you feel stressed and discouraged. You might end up not completing the repayment plan that you have created. So if you have to create a repayment plan, set realistic payments. Do not make it too low, but do not make it too high either.
How a well-crafted debt repayment plan can help
The truth is, before you start any task, you have to create a plan that will help you through it. In the beginning, it will guide you during the first few steps. But as you go on with your journey, you will realize that the plan will motivate you, helping you through the difficult task. And as you reach the end of the plan, it will give you the extra boost as you look forward to the finish line.
The same is true for an effective debt repayment plan. Along the way, you will identify debt payment mistakes that might compromise your progress. This will allow you to prepare for these mistakes so you can avoid them. Overall, the plan will guarantee that you will succeed in getting yourself towards debt freedom.
Here are other important benefits of using a debt repayment plan.
Helps organize your debts
Before you can create a repayment plan, you have to make a list of all your debts. You have to look into every detail so you can include it in the plan. This is a great opportunity for you to organize your debts. When you have all your debts organized, it will be easier for you to come up with an effective plan to make better payments. That is because you have a general idea of the problem. Once you fully understand the problem, you can find the perfect solution. The answer may be to get a professional to help out. Or maybe you need to consolidate debts. Sometimes, you just have to start earning more money. When your debts are not organized, it is more likely that you will make a mistake with your chosen debt relief program.
Shows your debt payment progress
Sometimes, there is a need to give yourself a reason to stay motivated. Since you have a debt repayment plan, you can simply cross out the finished payments. This will show you what you have accomplished so far. When you see your accomplishment, you get to feel more confident about what you can really do. That is the motivation that you need to keep moving forward. It will make you believe that you can really complete the debt relief program that you have chosen to use. We all know that once you have the right mindset, you can finish what you have set out to do.
Allows you to set other financial goals
Finally, having an effective debt repayment plan will make it possible for you to set other financial goals. When you combine this with your budget plan, it allows you to organize both your debts and finances. If you decide to work on another financial goal, you have all the details that you need in these two plans. What you will find in these two financial tools will allow you to make smarter decisions. Whether it is saving up for a downpayment on a new house or buying a more fuel-efficient car, it is easier to accomplish financial goals if you know where your finances currently stand.