Step-by-Step Guide on How to Pay Off Debt
Wondering the best way to pay off debt? It depends on a lot of factors, like how much money you owe, to whom you owe it, and how long you have to pay off debt. There are some tips and tricks that work in basically any situation. Here is a step-by-step guide on how to pay off debt.
Stop Creating More Debt
This sounds like common sense, but it is an essential first step if you are seriously going to pay off debt and keep it off: you need to stop borrowing money. This does not mean just big things like car loans, either. Credit card debt can easily get out of control and is a very common way for people to fall into debt in the first place. Only use your credit cards if you know you will be able to pay off the balance at the end of the month. If you can’t trust yourself, temporarily freeze your accounts, cancel them, or even get rid of your physical cards. You are not going to be able to pay off your debt until you stop creating more of it.
Create a Budget
If you are working on how to pay off debt, you also need to plan on how you aren’t going to create more debt. This means creating a budget. Be honest when you are laying out how you are going to spend your money. For example, if you normally get takeout multiple times a week but don’t account for getting it at all in your budget, it is likely that you will break the budget and buy the food anyway. Instead, plan out everything you will spend money on, both necessities and wants. Sticking to your budget keeps your finances under control so you can work towards the best way to pay the debt off. What is that, by the way?
Two Ways to Pay Off Debt
There are two main ways to pay off debt. People disagree about which is the best way to pay off debt. Each one works for different people in different situations. The first way is the snowball method. In this plan, you organize all of your debts from the smallest to the largest. Then you put all the money you can into the smallest debt. This does not mean breaking your budget. In fact, you should also be continuing the minimum payments on all forms of debt. Any extra money you can spare, however, goes to the smallest debt. Plan out how much money you can give to this cause every month. Once you pay off that debt, move on to the next smallest one until you are finished.
The other way to pay it off is through the avalanche method. This is similar to the snowball method except instead of starting with the smallest debt, you start with the largest. The idea behind the snowball method is that you feel successful early on. The success grows and grows as you pay it off, like a snowball rolling down a hill. The avalanche method takes longer to see the payoff, but once you do, it makes a big impact, like an avalanche. Paying off your largest debt will be a huge weight off your shoulders.
Unable to Pay Off Debt?
If you owe so much money that you don’t know how to pay off debt, you may need to file for bankruptcy. Bartifay Law Offices can help. They have been assisting Pennsylvanians with financial troubles since 1993. Call (412) 824-4011 to schedule a free consultation.