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Simple Steps for Paying Down Your Debt

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If you are hoping to purchase a house, or even just to improve your financial situation, you might find it best to start with paying down your debt. This action will allow you to improve your credit score, free up some funds for saving, and hopefully relieve some stress as well.

Unless you are fortunate to have a small amount of debt, you will quickly find that paying down your debt is something that takes time. It doesn’t happen right away, and it can even take several years to achieve. For many Americans, it’s a struggle that requires constant commitment. Follow these simple steps for paying down your debt to help you succeed:

1. Evaluate your situation. To really fix your debt problem, you will need to think about how you got into debt in the first place. This will help you to find the habits that you need to change with your spending, and even help you take steps to prevent it from getting worse or happening again.

This step should also involve a thorough look at your budget. If you don’t have a budget, you need to create one. Track your expenses and modify your spending habits until you have a budget that you are content with.

2. Stop creating more debt. If it all possible, you should stop using credit cards for the time being. Wait until your finances are under control before you let your debt amount get any higher.

3. Make a list of all your debts. Include the amount you owe, the creditor, your minimum payment amount, and your interest rate. You will need to gather all of your statement and bills, and even look up your credit report, to get all this information. Make sure it is all written down in one place.

4. Make a plan. List your debts in order of priority. Many people choose to pay off the debt with the highest interest rate first, to avoid paying more over time. Others swear by the “debt snowball” method.

5. Look for extra money. You might have to find creative ways to earn extra income (put your work bonus towards your debt instead of spending it on luxuries) or cut back on current expenses. You can even shop around for lower interest rates or take advantage of balance transfers with low rates. Anything you can do to minimize the amount you owe and create more revenue to apply to your debt is a good thing.

6. Don’t stop. It is easy to get discouraged while you are paying off your debt. It’s a long process, and unexpected setbacks and financial emergencies can set you off course. Stay focused and keep going. Reward yourself for small successes (like 25% of your debt paid off) in order to acknowledge your progress and stay motivated.