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Whether it’s from the recent holidays or from life in general, staring at a pile of debt can be downright overwhelming. But tackling this problem can actually be a lot easier than it seems. It just requires a well-thought-out approach.
The first step you should take is to get organized. This is actually the step that most people avoid, as if seeing the problem clearly might bring on more anxiety. But facing the problem for what it is is the only way to beat it. Write down every debt you owe to every creditor, including interest rates and due dates, so you can prioritize which needs to be paid first.
Once you have listed all your debts and can see your entire financial picture, it’s now time to formulate a plan. But before you do, step back and realize a few key points:
- Be realistic. Paying off debt can take a long time, sometimes years. You don’t want to set yourself up to fail, so make sure you are aware of your limitations and your abilities so that your goals are attainable.
- Your situation is temporary. No matter how much sacrifice it takes to pay off debt, any lifestyle adjustments you have to make are not forever. Realizing this will help you approach your debt-reduction with a purpose.
When paying off debt, one of the most important things you can do is make sure you make at least the minimum payments for each bill on or before the due date each month. This may seem like common sense, but failure to do so will increase your interest rates, add penalties, or even worse – hurt your credit score.
In order to make a real dent in your debt, however, you will have to make more than the minimum payment. But the amount may vary from debt to debt and from month to month. A good rule of thumb is to pay double your minimum payment toward all your debts. If this isn’t possible, even $10 or $20 extra per month makes a difference.
Some recommend paying more towards higher interest rate debt first, while others find success paying off the smallest balances first. Either way works if you begin gaining momentum and seeing your balances reduced. It may simply take a little trial and error to find out what works for you.
Bottom line, paying off debt is not only possible, it’s actually rather simple once you have a plan. But simple and easy are two different things. While the math may be clear-cut once a plan is in place, staying disciplined is where the battle is won or lost.