If you really want to get out of debt, there are a couple of tools that you can use to guarantee your success. But if you really want to reach your goals, you should have a plan in place to make it happen.
A debt payment plan is one of the key tools that will help you eliminate debt. It is defined by BusinessDictionary.com as the means to pay off your outstanding credit dues. It is most helpful for those who know that they are prone to give in to spending temptations. A payment plan will help you get a firmer grip on your impulses. If anything, it will help you put aside the money that you need for the monthly contributions you need to give to your creditors. That way, you will not spend it on unnecessary things.
Why do you need a plan to get out of debt?
There are many reasons why your debt payment plan will serve an important role in your debt freedom. It will help you with the following tasks involved in paying off debts.
Guides you on the amount you have to pay each month.
Keeps you from being late on your monthly obligations.
Helps you identify the debts that must be prioritized. In case your funds are suddenly compromised, you know which debts you must pay first.
Allows you to track the progress of your payments and to gauge how far you have to go.
Aids you when you are making financial decisions.
Motivates you by showing when your debts will be completely paid off.
In some debt relief endeavors, people get so confused and discouraged to the point that they give up on their efforts altogether. You do not want this to happen. If you can see your progress, this can be avoided.
There are certain debt relief programs that does not include a debt professional. If you want to skip the service fee, you may want to take some time and effort to create your debt payment plan. Here are three of the debt relief programs that will require this plan.
Snowball method. This debt relief option requires you to rank your debts according to priority. You will pay the minimum for all your debts while putting all extra money into the priority debt. When that is finished, you will placed the freed funds into the next priority debt and that will go on until you have paid all your debts. A debt payment plan will help you gauge how long you have left until each debt is paid off. It will also help you foresee how much money will be added to the next after a priority account is completely paid off.
Debt consolidation loan. The main process of this debt solution is to get a low interest master loan that is enough to pay your multiple credit accounts. The end result is one debt that you have to pay every month. Although there is only one debt to pay off, you need a debt payment plan that will ensure you can stick to your payments. Sometimes, the convenience of an easy single payment will make us too complacent that we stop paying attention to our spending. If we are not careful, we could end up being reckless once more and incur another set of debts that can bury us again.
Balance transfer. Just like in debt consolidation loan, this debt relief option will combine your debts under one account. But instead of a loan, you will use a new credit card and transfer your high interest card balance there. These balance transfer cards are usually offered with zero interest rates for the first 6 to 18 months of ownership. You want to create a debt payment plan for this zero interest promo period so that you can make better progress in decreasing the amount that you owe.
How to make an effective plan to help with debt payments
Of course, to benefit from a debt payment plan, you should be able to create an effective one first. If you have no idea how to do it, there are templates online that you can seek out. We suggest the one from Money.CNN.com to help you calculate your debt payments.
But if you want to do it from scratch, here are the steps that you have to follow.
Create a budget plan before your payment plan. It is important that the latter is incorporated in your monthly budget to ensure that it is within what your income can afford.
Once the budget is created, you can list all your debt obligations. Make sure they are ranked according to your priority.
Include details like the monthly payment, due date, remaining balance and maturity date. The last refers to the time when your debt will be completely paid off.
Determine the debt payment fund based on your budget plan.
Allocate an amount towards each debt account. Make sure that you can pay at least the minimum amount. If not, follow the payment instructions based on the debt relief program that you have chosen to help with debt.
In case your extra money is not enough to cover your debts, you can determine the shortage and see if cutting back on expenses will suffice for the deficit. If not, you may have to get a second job that will help increase your payment fund.
The bottom line is this, with the debt payment plan, you are able to determine how you will tackle paying down your dues with the limited resources that you have. All your other financial decisions can be aligned easily with your debt relief program because you simply have to consult this plan to see the figures.
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.