The average American currently has approximately $38,000 in personal debt (and that’s excluding mortgage loans).
If you have debt are looking to repay it, it helps to set up a monthly loan repayment plan. It’s also good to have a repayment plan in place if you’re planning to take out a loan in the near future.
Not sure how you’re going to repay your loan? Want to figure out the most efficient way to pay it off? If so, keep reading.
Listed below are some tips that will help you put together a loan repayment plan that works for you.
Calculate Your Debts
The first step to getting out of debt is making sure you have a clear idea of how much money you owe.
It’s not fun to do, but you need to sit down and calculate your debts. Add up every penny that you owe on every loan.
You might feel a little overwhelmed when you’re doing your calculations. Once you’ve done it, you’ll be able to put together a plan to address these debts.
Rank Them
Once you know exactly how much money you owe, it’s time to rank your debts. There are a few different ways you can rank your debts.
One of the most popular ways to rank them is from least to greatest. Put the smallest debt at the top of the list and then work your way down.
You can also rank your debts based on the interest rate. Place the debt with the highest interest rate at the top of the list, then work your way down from there.
Be Realistic
Once you’ve ranked your debt, the best approach to paying them off is to focus on paying one debt at a time.
You might choose to start with the debt that has the highest interest rate, or you might start with the largest debt. It doesn’t really matter which debt you start with, you just need to make a decision and stick to it.
As you’re putting together your debt repayment plan, you need to be realistic about how much you can put toward your debts each month.
Take a look at the average amount of money you have coming in every month, then figure out how much you can spare to pay off your debt.
Look for Ways to Increase Your Income
If you don’t have enough extra money left over each month to put toward your debt, you’ll need to look for ways to increase your income.
Once upon a time, this was hard to do. Now, though, there are tons of different ways you can increase your income on your own terms.
Look into driving for rideshare apps like Lyft or Uber or consider delivering food for a company like GrubHub or DoorDash.
These side gigs are easy to scale and allow you to earn extra cash without having to put in a lot of effort.
Put it in Writing
After you’ve figured out how much you owe and how much you’re going to put toward your debts each month, your next step is to put your repayment plan down in writing.
Create a contract for yourself detailing the exact terms of your debt repayment plan. Sign it, too, and display it somewhere where you’ll easily be able to see it and remember it.
Maybe put it next to your computer so you can look at it whenever you’re tempted to make a random online purchase.
Hold Yourself Accountable
If you need extra help sticking to your debt repayment plan, share it with someone you know and trust.
Let them know what your goals are and how you’re going to accomplish them. Then, ask them to hold you accountable.
Maybe you’ll text them whenever you’re considering making a purchase, or they’ll check in on you once a month to see how well you’re doing at paying off your debts.
Pay More Whenever You Can
Think of the amount you’re planning to put toward your debts as your monthly minimum payment. You absolutely must pay that amount each month, but that doesn’t mean you can’t pay more.
If you have more money coming in one month, or if you receive a bonus or monetary gift from a family member, put that money toward your debt.
Even if you only do this a couple of times, you’ll still be able to put more money toward your debt and pay it off faster.
Don’t Let Setbacks Keep You Down
Even the most carefully laid out plans get foiled from time to time.
If something happens and you get off track, don’t throw your whole debt repayment plan out the window. Reassess the plan as needed and recommit yourself to stick to it.
You may have slipped up or had an emergency that needed your attention, but that doesn’t mean you should give up. Forgive yourself and move on.
Build Up Your Savings
It’s also important to think about what you’re going to do once your debt is paid off.
Focus on building up your savings account. That way, should an emergency present itself in the future — such as the need for financing an immigration bond — you’ll have the money to take care of it and won’t have to rely on loans.
When you do take out loans in the future, make sure you’re using them in a responsible way. You should have a plan in place to repay it right from the start, and you should avoid borrowing more than you need.
Create Your Loan Repayment Plan Today
Putting together a loan repayment plan can definitely be overwhelming at first. Remember, though, that it’s not as overwhelming as being in debt with no idea how you’re going to get out of it.
If you keep these guidelines in mind, though, you’ll have a much easier time repaying your debts.
Do you need more help getting out of debt and getting control over your finances? If so, we’ve got lots of resources available on our site.
The Accounting section is full of helpful articles about personal money management, business money management, and more. Check it out today.
