Determine the Amount of Your Debt
The first thing that you must do is make a list of your creditors. Next to each creditor, write the total amount of money that you owe.
Once you have completed the list, calculate the total amount of debt that you owe. Take a few moments to process the total amount of debt.
This step is the most uncomfortable part of the debt repayment process. As you are reviewing your debts, you may get overwhelmed.
Resist the urge to skip this step. It's normal to feel embarrassment, shame or guilt when you finally come to terms with the amount of money that you owe. Embrace any adverse feelings and know that they'll pass.
Calculate Your Current Income
How much money do you earn each month? If you don't know the exact amount of your monthly income, it's essential that you calculate it.
Knowing your monthly income will help you determine how much income that you have to repay the debt and pay your monthly expenses. Knowing the amount of money that you earn will help you determine if you need to earn additional income.
Now that you know your monthly income, subtract your monthly expenses from your monthly income. If you discover that you don't earn enough money to repay your debt, you may have to make a few crucial income decisions.
This activity may reveal that you need to find a full-time job that pays more money than your current job. Or you may decide to start a side business or get a part-time job.
Whatever decision you make, you should take immediate action. If you decide to take action at a later date, it will prolong the debt repayment process.
Increase Your Income
In this economy, there are thousands of ways for you to earn additional income. If you have a skill that you can teach to others, you can become a consultant or a coach. Or you can find a product to sell online.
When it comes to earning money, you have plenty of options. Here are a few ideas to get you started.
- Transport passengers for Uber, Lyft or another rideshare service.
- Tutor school-age children, college students or adults who are returning to school.
- Sell items that you no longer use.
- Write an eBook and sell it on Amazon.
- Work additional hours at your current job.
- Deliver pizza or other types of food.
- Become a freelance writer.
These side hustles offer a quick way for you to earn additional money to repay your debt. As you earn money, use it to repay your debts.
Decide on a Debt Repayment Method
How are you going to repay the debt? Which debt will you repay first - the lowest balance or the one with the highest interest rate?
There are two popular methods that people use to repay their debts. With the Debt Snowball Method, you will work to pay off your lowest balance first. After you repay the first debt, you will repay the next debts until all of your debts have been paid off.
The second method is the Debt Stacking Method. When you apply this method, you'll repay the amount with the highest interest first. After you repay the first debt in full, you will repay the debt with the next highest interest rate.
There is no right or wrong way to repay your debts. You should select a method that works best for your situation.
Regardless of the method that you choose, you should continue to pay the minimum balances on your other debt. Making payments on all of your debts will help you keep your credit rating in good standing.
Millions of people get out of debt each year. This guide can help you develop a plan to become free from debts.