How to reassess a debt payoff plan to knock out debts faster?
Sometimes our debt payoff plans don’t work the way we want it to. Know how to reassess your debt payoff plan to knock out debts faster
Nobody likes debts. It’s true.
But we still take out credits repeatedly. That’s true too!
These debts are like sticking leeches, only growing fatter and fatter on interests!
To clear our debts, we all follow budgeting, take help of lawyers and financial coaches, but most of the times all our methods seem to be of no use when the debt amounts are huge!
So if you are one such person, who have walked on several dusty roads but still can’t get clean of debts, and lost all his hope, then it’s time to reassess your debt payoff plan.
How to understand that your debt payoff plan needs a revision/reassessment?
All big organizations and companies have trouble dealing with capital, resources, products, and finances every now and then. It’s no big deal to deal with problems in life.
But where is the hidden art? It's to understand that we all need to revise our past mistakes and evolve better, smarter and wiser.
Somewhere, something must have gone wrong in your debt payoff plan, that is not allowing you to succeed as per your strategy!
Now, only you know how you have structured your debt payoff plan, what monthly payments you have decided to make, and how you have prioritized your debts.
So see, have you targeted all your debts in your previous plan?
Did you forget to consider the interest rates that increase your debts with time?
Or did you forget to calculate your other obligations and expenses along with your debt payments, and are now running short on cash?
These are the very basic questions to sit down with while revising your current pay-off structure.
If required you can completely dissolve your previous plan, and follow the tips I am about to show you, to knock off your debts fast.
First, prioritize your debts:
This is the most important part, that will give you a head start in clearing your debts.
You list all the debts that you have. Mortgage, auto loan, credit cards, payday loans, and etc. all will be factored into this section.
But let me clear one thing first, secured debts take time to be paid off. The structuring of such debts, like mortgage, or auto loan, is done in a manner so that the creditors can profit a significant amount from these loans.
So you keep on doing your periodic payments for secured loans and list down your unsecured credits and consumer debts as per the debt amount or interest rates.
Unsecured debts tend to cause the most problems for any debt payer, as these don’t have any fixed terms, and carry massive interest rates on them. Examples could be credit cards, payday loans, personal loans and so on. Presently, the biggest problem is credit card debt which we just can’t get rid of easily.
The reason behind this is, most of us don’t budget before starting to make payments!
Devise a budget that goes well with your income:
Once you have prioritized your debts and figured out which debts to hit first and which to hit second, it is time to make your own budget.
Here are two good budgeting strategies to use:
50-20-30 budgeting:
A very useful tool for beginners, this budgeting is simple and straightforward.
Each month, you keep aside 50% of your salary for day-to-day expenses.
20% you keep aside for savings or emergency purposes, and 30% is generally meant to be for luxury spending.
If in your case, you are too crowded with debts, then you can use this 20% and 30% to make extra payments for your debts.
The Zero-based budgeting:
This budgeting is for pros and the money experts. It can actually help you to reassess your previous plan.
Each month, you make a long list of all your probable and to
You need to insert your debt priority list here, and your other expenses like groceries, utility bills, transportation and etc.
Now you assign specific values to all your expenses and add them up. If the sum equals to your salary then you can sleep at ease, otherwise, you need to forcefully make the sum of expenses equal to your salary by using those leftover dollars for extra payments toward debts.
Miscellaneous ways to knock out debts faster:
Increase your income:
The main obstacle in clearing debts is low income. If possible you can see other options to increase your income.
Doing so will help you to dedicate extra cash toward debt payments and it's possible that you can slash out your debts sooner than you ever could have imagined.
A suitable debt relief option:
Sometimes our debts are huge, and normal procedures might not seem to be as helpful as planned.
You can try to find the best debt relief program that suits you or visit a financial planner for a more detailed approach.
Sometimes debt settlement can also be a good viable option if you want to lower your debt amount to some extent and pay a lump sum to get rid of them for good!
Figure out a nice payment strategy:
Mr. Dave Ramsey formulated the debt snowball method, where you target your lowest debt and make extra payments towards it while doing the minimum required payments for the rest of your debts.
If you have 3 debts, say:
Debt 1: $1000 (min payment per month: $70)
Debt 2: $1500 (min payment per month: $90)
Debt 3: $1800 (min payment per month : $100)
So for Debt 1, you do $80 payment per month.
Once you clear it, you add these $80 to $90 minimum payments for Debt 2.
Now you do $170 payments for Debt 2.
Again once you clear Debt 2, you add $170 to Debt 3, and make a payment of $ 270 against it. You keep on going like this till you clear all your debts.
Another good method could be debt avalanche, where you target the debt with the highest interest rate and make extra payments against it. Once you clear it, you target the next highest interest rate debt.
If you can follow all the suggested methods stated above, then you can surely wipe out your debts fast, and you will not have to look back and reassess your plans again.
Good luck, with your debt driving!
Author Bio: Andy Masaki is a blogger and financial writer. He is a debt expert and a member of several online forums where he shares his advice as well as tips to lead a financially independent life. You can find his writing here: Andy Masaki author at Centsai