If you owe multiple debts and find it difficult to make the repayment, it is time you sat down for half an hour and thought about how to manage your debts effectively. The best way to do this is to compare your debts and construct a healthy debt repayment plan. However, it is very important for you to understand that no matter how impressive is your plan it is not going to work at all if you keep spending more than you earn. Such activities will only put you into a deeper debt problem. Therefore, spending less than you earn is the key here.
Step I: Get The Ball Rolling
In order to get started with the process, you will first need a couple of things. The first thing that you have to do is to get the latest statement for all the debts. Whether it is a student loan, an auto loan, a mortgage, credit card debt, or any other outstanding consumer loan, you have to get a detailed statement for every single debt. These statements must clearly identify the annual interest rate. Now, get a pen and a few sheets of paper.
The First Comparison List
It time to start making your debt repayment plan. First, you have to create an initial list with four columns – the name of the debt, the total amount due, the amount of monthly installment, and the current rate of interest. Look into the individual statements and you will easily be able to find all this information there. You no more need those statements now. You have replaced them with this single sheet of paper.
Step II: Sort The List Based On The Current Rate Of Interest
The next step is to find out the debts that should be priority. Obviously, you would like to pay the debts with higher rates of interest first. It means you have to sort the list in decreasing order of the interest rates – the highest one at the top, then the second highest one, and so on. When it comes to developing an effective debt repayment plan, the balance on the debt should get second priority. So, at this stage, you don’t have to worry about the debt that has the biggest balance. Always remember, the debt that you have to pay off first is the one with the highest rate of interest.
Step III: Explore The Ways To Reduce The Rates
Now, you have to find out if there are ways to reduce the interest rates. Start from the top one. For example, if it is a credit card debt, you can simply give a call to your credit card company and try to negotiate. Every lender wants their money back and it is not very surprising if the company readily accepts to reduce the rate down. If not, you can also consider going for balance transfer to another credit card with lower interest rate.
Another day, I will walk you through the remaining steps of your debt repayment plan. Meanwhile, you can visit my website for more information. My site is a complete online resource guide to debt management and how to achieve a debt free life.