Creating the perfect debt repayment plan is just the first step to achieving complete debt freedom. While it will make things easier to accomplish, it will not guarantee that you will be successful. You still have to go through all the debt payments before you can completely remove debt from your life.
With the rising consumer debt levels, Americans are prioritizing their debt payments. In fact, 7 out of 10 parents consider debt management as a top priority. It seems like it is more important to them than saving for their children’s college fund or their retirement.
If you are like these people who have made a decision to prioritize their debts, you need to start by creating a debt repayment plan. This will serve as your guide as you make your debt payments. It will help you steadily get yourself closer to debt freedom. Not only that, but it will also help you see how far you have come. It will show you how many payments you have done so far and how long you still have to go when it comes to your debt payments. It helps you make plans around your debt payments so you can improve other areas of your finances while paying off your debts.
Qualities of an effective debt repayment plan
Of course, creating an effective debt repayment plan means it should have certain qualities. To ensure that you are creating the right plan, you might want to follow these tips.
Put it in writing
Start by putting your plans in writing. If you just rely on your memory, there is a high chance that you will falter in the midst of your debt payments. According to a psychologist, writing down your goals will increase the chances of success. If your goal is to achieve debt freedom, then it will serve you well to write it down through your repayment plan. Apart from reminding you of your responsibilities, it can also motivate and encourage you to commit to your plan. Make sure to place this plan where you can access it often. When you see how far you have come in terms of your monthly payments, it will help fuel your drive to keep on paying off your debts.
Make it realistic
An important quality of a debt repayment plan is being realistic. Some people start with so much enthusiasm. It makes them more likely to set high goals with the intention of paying off their debts faster. While this is admirable, it can also lead to unrealistic plans. Make sure that you set the highest debt payment but it should be something that you can afford. That means after paying off your debts, you should be left with enough money to pay for your basic necessities. Otherwise, your repayment plan will feel very stressful. You will find it hard to commit to it until the very end.
Align it with your budget plan
To make your debt repayment plan realistic, you need to align it with your budget plan. This will help you identify the amount that you can use to pay off your debts without compromising your lifestyle too much.
But beyond that, your budget plan will also help ensure that your debt payments are funded. Make it a priority and it should always have funds to use to pay off debt. By being conscious of your budget plan, you can also use it to stay out of debt while you are in the midst of a repayment plan.
How to complete your debt repayment plan
Now that you have a debt repayment plan, it is time to find out how you can complete it. Creating the plan and completing it requires two different efforts. You may have created the perfect plan but if you fail to implement it properly, you will also fail to pay off your debts completely.
To help you with the second part of your debt relief journey, here are the different things that you need to implement.
Stop borrowing more money
If you want to get rid of debt faster, you should stop adding more credit to your balance. You need to put a lid on your credit card use. This is not forever. You can use it again but only after you have paid off your debts. At the very least, you should only start using your credit cards if you have paid a significant part of what you owe.
Monitor your progress
Your debt repayment plan is not just there to tell you how much you have to pay each month. It is also a tool that will help you monitor your progress. You can cross out every payment so you can see how far you have come. This is a great way to motivate yourself – especially when the plan shows how much you have paid off. Make sure you do not remove the amount of debt when you started. Comparing it can help push you through difficult times.
Increase your monthly payments when possible
Every time there is a chance to increase your monthly payments, take advantage of it. The more you pay, the faster you can get out of debt. According to a survey, 1 out of 3 Americans plan to pay off debt after getting an unexpected bonus worth $5,000. This is actually an admirable decision. That amount can make a huge difference in your debt repayment plan. It can also save you in terms of the interest amount that you will pay towards the debt.
Of course, you should not wait for that unexpected bonus to arrive. You need to be proactive in increasing your income. You can ask for extra shifts at work. Or you can get a second job to increase your extra money. Anything that you earn in excess can be used to increase your debt payments.
Setup milestones and rewards
If you want to stick to your debt repayment plan, you should setup milestones that you can celebrate with small rewards. It will make the whole debt relief journey bearable. Think of it as running a marathon with multiple stops to drink water. If your debts are making you feel overwhelmed, you might want to divide it into segments. Instead of looking too far, the milestone will make your goal reachable. You can focus on that and once your each it, you can celebrate it by giving yourself a small reward. After that, you can focus on the next milestone. Soon, you will realize that you are already a few payments away from completely paying off your debts.
Keep your end goal in mind
A great financial strategy to reach your goal is to always keep it in sight. Again, this is one way to motivate yourself as you try to complete your debt payments. For instance, you have decided to be aggressive in paying off your debts so you can start saving up for your own house. You can print out a photo of your dream house. Or maybe you want to have the financial freedom to afford yearly vacations. Have a visual representation of your goals so you can keep on looking at it to help you complete your debt repayment plan.
Get yourself a support system
Finally, you should think about getting a support system. This is good for two things. The first is you will be held accountable. When you tell someone about your intent to be debt free, you have more reason to want to succeed. After all, you do not want to lose face when you fail to complete the debt repayment plan. If you do not want to be embarrassed, you will do your best to succeed. But apart from that, your confidante can also serve as your emotional support. He or she can also cheer you on and motivate you when times get too hard. Sometimes, even simple words of encouragement can be a huge help as you try to achieve debt freedom.
Since debt freedom is usually a long process, there is a high chance of setbacks happening. Your support system can help you through these times. No matter how frustrating things get, there is nothing like a good cry or talk to make you feel better. Having someone there to comfort you will really work wonders. It can encourage you to complete your debt repayment plan.