According to a recent LendingTree report, 4 out of 5 Americans are in debt. The report also found that more than 25% of people in debt do not have a plan for relieving that debt. That’s not a good statistic. If you want to get out of debt, you need to have a solid plan in place.
But where do you start? How can you create a plan to get out of debt when bills keep piling up and the same amount of money is trickling in? You start with the basics.
The Very First Steps
1. Write Everything Down
You can’t create a plan (of any kind, really) without knowing some basic facts such as:
- What is your total amount of debt?
- Who do you owe debt to (names of creditors)?
- What are your monthly payment amounts?
- What is the frequency of each payment?
It can be scary to face these numbers, but you have to write them down somewhere (I recommend starting a spreadsheet to keep track of amounts, creditors, and payments). Make sure to gather all of your bills and write down as much information as you can. If you can’t find a total debt amount, call your creditors and ask for those amounts, frequencies, etc.
2.) Create an Order of Importance
Some debts are more important than others, but the way that you rank this importance is up to you. If you want to save the most amount of money, choose the debts with the highest interest rates to pay off first. If you want to pay down small debts first in order to kick start your momentum, you can do this too.
It is important that any debts that may jeopardize your well-being are paid off right away - this includes overdue home payments, car payments, or any other debts that might prevent you from working or living.
3.) Size Up Current Expenditures and Salary
Keep track of the money that you spend for an entire month (use a debit card so that you can track transactions). Note where your money is going ($5 lattes? $20 lunch salads? Random shopping sprees?). Also make a note of how much money you have coming in weekly, bi-weekly, or monthly.
The next article in this series will show you how to figure out where you can cut back on expenses, where you can’t, and how to put your plan into action -- but, baby steps. Just getting these details down on paper will jump-start the process, and that’s a massively important step forward!
Stay tuned for additional debt planning articles -- if you are currently facing bankruptcy or any other serious debt-related problems, please call our offices for help right away. While debt planning will work in the long-term, this is not a nice and easy solution for impending bankruptcy.
We want to make sure that you have a good plan in place when it comes to relieving debt. This is the first in a series of debt planning articles that we are working on in order to help you get out of debt.