Too much debt?
Do you feel like you have too much debt?
I do (see my list of debt reduction goals). Many people I know feel like they have too much debt.
On the other hand, maybe you’re somewhat comfortable with the amount of debt you have but you’re just ready to experience the peace of mind that comes from being completely debt free.
I’ve found that once you’ve decided to pay off your debts, doing so can be an overwhelming experience at first glance. Let’s look at some actions steps you can take today to simplify the process, prioritize those debts, and get them paid off quickly.
First, break out your latest debt statements. For most people in debt, this will be auto loans, student loans, and credit cards. This may also include personal loans, payday loans, medical bills, and tax bills.
Another thing you can do is download a month of your bank transactions from your bank. This may remind you of any debts you are forgetting. Having all of this out in front of you will (1) give you the full picture of your debt situation, and (2) motivate you to want to rid yourself of some of these monthly payments.
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Make a List of Your Debts
Next, it’s best to create a list of all your debts and include the following categories: name, total amount, due date, interest rate (including future rate changes), and minimum payment. You can use a simple pen and paper or upgrade to a spreadsheet (which makes sorting easier).
Either way, just make sure you get ALL of your debts listed out and include all the relevant information.
Prioritize the Debts
Lastly, you’ll want to prioritize your debts for payoff. There are a couple of schools of thought on this one. Some people like to use the interest rate on the debt to prioritize their list (payoff highest interest first). Others like to use the total balance of the debt, paying off the smallest debt first (this is the Dave Ramsey “snowball” way).
The former is better from a strictly numbers perspective. The latter may be better for motivation sake.
Decide which is right for you and rank your debts accordingly. The debt that ends up #1 on your list according to your ranking, will be the first debt you payoff. This will be the debt that you put all of your extra money towards.
After this one is completely paid off, move to #2, and so on until all debts are paid off.
Stay Motivated to Pay of Your Debts
Once you have your debt payoff priority, put your list (now ranked by payoff) somewhere where you will see it on a daily basis. I like to stick mine on the fridge. I’ve also placed my list in my car’s dash and on my bedside table.
The point is to keep the list somewhere you will look at it daily.
Do you have your debts prioritized? If so, how did you do it? What factor did you use?
Photo by redvers