80% of adults in the U.S. carry some form of debt. That’s the average across all adult age brackets, from Baby Boomers all the way to Millennials. The latter, however, has the greatest number of those in debt, at 81.5%.
What’s more surprising is how much of what we owe is money we’ve never even seen nor touched.
That’s right. Our love for plastic but lack of debt repayment plan has led to credit card debts soaring past $1 trillion in 2017. Doing the math, that means an average consumer carries almost $6,400 in credit card balances alone.
That’s only the average for credit card debts. It doesn’t include mortgage, student loans, and other personal debts. To give you an idea, those within the 35 to 44 age bracket have an average total debt of $133,100!
Seems too big to repay? Keep reading then to learn how debt repayment is achievable!
1. Face the Truth and Look at the Actual Numbers
Let’s get one thing straight first: Borrowing isn’t a bad thing. But not having a plan to repay it is a different story.
This lack of repayment plan is what gets many of us into trouble. Not knowing where we stand in our financial obligations makes it easy to think we can take on more debts. As such, the first step to start ridding yourself of debts is to take a long hard look at how much you owe.
This may seem terrifying. But a clearer picture is what it takes to prompt and motivate you to take back control of your finances.
Start by creating a spreadsheet listing all your debts down. To make the tables easy-to-understand, create a row for each of the following:
- Creditor – The person or party you owe money to
- Minimum Payment – The amount you need to pay to avoid surcharges
- Repayment Frequency – This can be weekly, monthly, etc.
- Interest Rate
- Total Debt – The actual amount of money you owe, including interest
It’ll be easier for you to determine where exactly you stand by organizing your debts into a table like this. Make sure you include all your debts, and not only those on your credit cards.
Let’s say you’re one of the 44 million student loan debtors in the country. Then details about this loan should show up on your debt repayment spreadsheet. Personal loans, like those you owe family and friends, should also appear in your final list.
2. Rank Debts Based on Which You Want to Pay First
Next, figure out which of your debts you want (and should) pay up first. Prioritizing the right debts can help prevent more interest from piling up.
So, how do you determine which one should go first? This still depends on you, but you may want to pay off those with higher interest rates first. Especially if what you currently owe has dwindled down to a smaller amount.
If you have several high-interest loans and credit card balances, it may be best to start with them. This way, you can at least prevent paying more in interest fees.
Your other option is to get rid of your small-balance loans first. Seeing your debt list grow smaller can already be a huge motivator. This can be a good option if you have a lot of these smaller loans.
3. Factor in Your Budget
So far, so good, right? But don’t forget that your debts aren’t the only things you’ll spend money on!
You have a long list of other expenditures, like home maintenance and transportation. There are also your utility bills, which can be pretty hefty too. U.S. residential electricity bills alone averaged $111.67 in 2017.
If you have private health and dental insurance, that’s also a monthly expense. You have to eat and have some fun too, right? If you have kids, childcare can quickly eat through your budget as well.
If you think that’s a lot, know that this is far from being an all-inclusive list. That’s why it’s best you also create a budget planner worksheet. This way, you can figure out how much extra money you can put towards paying off your debts.
4. Stick to One Debt at a Time
To make your debt payment plan succeed, focus your efforts on the first one on the list. Any extra cash you get, put it towards this debt but don’t forget to pay the minimum for the rest.
The reason you want to do this is because sticking to one debt makes it easier to repay the entire thing. More of the payment goes toward reducing the principal balance. At the same time, you pay less on the interest charges.
Spreading your payments over several loans likely means only paying off the interest. That won’t help you reduce the actual amount you owe. If you keep doing this, it’ll take a much longer time for you to get out of debt.
5. Boost Your Repayment Ability
In Step 4, we mentioned something about “extra cash”. If your main source of income doesn’t give you this, it’s time to look at other income generating options. You should also assess your spending and find out which ones you can cut back on.
If you’ve got time, consider a part-time job or work extra hours to get overtime pay. Another strategy is to sell pre-loved items you own. You can also do freelancing work, like blogging.
What’s important is to use the extra money you get from doing these things toward your debt repayment. You should also do the same with the money you get from tax returns and bonuses.
Get Started on Your Debt Repayment Plan Now
Paying off all your debts may seem like an impossible task now. But by sticking to a debt repayment plan, you’ll see that it’s 100% achievable. Paying off one debt may seem like a small victory, but it’s a victory nonetheless.
So, get started on paying back your debts ASAP! The sooner you do, the earlier you can enjoy a debt-free life. Use our free debt calculator now to help you do the math!