If you’re overwhelmed with financial obligations, a debt management plan may be worth considering. The right debt management plan can help you establish beneficial financial habits and accelerate your debt payoff. A good plan can involve a personal loan for debt consolidation, among other financial tools, like a solid budget, to help you quickly organize what you owe and understand the impacts of becoming debt-free.
While it can sometimes help to hire a professional to support you on this journey, the DIY route can save you some cash and allow you to take a more hands-on approach to the payoff process. Here are the steps to build a personalized debt management plan.
1. List your debts
First and foremost, jot down all your debts. Be sure to include credit cards, car loans, medical bills, personal loans, and student loans. Next to each debt, add:
- The name of the lender
- The total amount you owe
- The interest rate
- Whether interest is fixed or variable
- Your monthly payment
If you’re unsure about the details of a particular debt, log into your online account, check your latest statement, or contact your lender directly.
2. Make a game plan
Once you know what you owe, it’s time to figure out your ideal debt repayment plan. In general, there are two DIY options:
- The debt snowball: With the debt snowball, you prioritize paying your smallest debt first so you can build momentum and stay motivated throughout the payoff process.
- The debt avalanche: The debt avalanche is where you focus on paying the highest-interest debt first with the goal of saving as much money on interest as possible.
As you consider these strategies, you may also want to explore debt consolidation. If approved, you can combine multiple high-interest debts into a lower, fixed monthly payment using a debt consolidation loan. For some people, streamlining multiple debts into one makes a big difference in effectively managing the debt.
3. Execute your strategy
Once you choose an approach to debt repayment, set yourself up for success by implementing easy wins, including:
- Automate minimum payments: Missing a minimum payment on a debt may negatively impact your credit score. Automating what you owe so it draws from your checking account on time each month is a simple way to guard against further negative impacts.
- Find ways to pay more on what you owe: A side hustle can provide extra income that you can funnel directly toward debt repayment. Similarly, cutting our extraneous expenses, like subscriptions you don’t use or food delivery services, could mean a few extra bucks per month that you can put toward debt.
4. Don’t rack up more debt
As you stick to your debt management plan, avoiding taking on new debt is important. This may mean locking away credit cards, removing stored cards from web browsers, or deleting your favorite shopping apps from your phone. It may also require you to put off large purchases or temporarily pause discretionary spending on things you don’t really need, such as concert tickets or restaurant meals.
5. Create a budget
It will be much more difficult to follow your plan if you don’t have a realistic budget. A great budget considers your lifestyle, needs, and preferences. There are various budgets out there that you might want to try, including the pay-yourself-first, 50/30/20, or zero-sum budget. Once you come up with a budget, make every effort to follow it and modify it as your circumstances and debt burden change.
6. Be patient and celebrate the small wins
Unfortunately, it will take time to get out of debt, especially if you have a lot of it. That’s why it’s important to practice patience and persistence. To stay on track, be sure to celebrate the small wins. For example, you might treat yourself to an ice cream cone or an outing at your favorite free museum when you pay off your first debt. Small, low-cost celebrations along the way can help you stay committed to the benefits of a debt-free lifestyle.
Say goodbye to debt with a debt management plan
Just like most things in life, paying off debt is a journey. The good news is that the right debt management plan can help you achieve your goal of a financially secure life, free of debt and money-related stress.
Lynn Martelli is an editor at Readability. She received her MFA in Creative Writing from Antioch University and has worked as an editor for over 10 years. Lynn has edited a wide variety of books, including fiction, non-fiction, memoirs, and more. In her free time, Lynn enjoys reading, writing, and spending time with her family and friends.
