Debt can be stressful, especially when you have more than one debt to pay down. While mortgages and auto loans are typically normal debts to have, juggling high-interest credit card loans is a stressor no one wants to worry about.
If you’re looking for the best way to budget for paying back debt, follow these tips:
Know What You Owe
List every debt with its balance, interest rate, and minimum payment. You may think you know how much you owe, but once you sit down and take a look at it all together, you’ll be surprised how eye-opening it can be.
Build a Basic Budget
Start by tracking your monthly income and everything you spend. From there, separate your essential household expenses, like rent, groceries, and utilities, from discretionary spending such as dining out or streaming subscriptions. This will help give you a clearer picture of where your money is going and where you might have room to cut back.
Decide on a Debt Payoff Strategy
Experts often recommend well-known and popular methods of repayment, although neither one is really better than the other. Just pick the one that sounds the most motivating and doable to you.
- Avalanche method: Put extra money toward the highest interest rate debt first and pay the minimum on everything else. When that’s paid off, you put additional money towards the next highest interest rate card. Rinse and repeat. This method will likely save you the most money over time.
- Snowball method: Pay off the smallest balance first regardless of rate. By giving you quick wins, this provides momentum and motivation to keep you invested in the repayment process.
Look for Ways to Get Extra Money to Help Pay Debt
- Consider temporarily pausing discretionary spending on recreation and entertainment and redirecting that money toward debt repayment.
- Use one of the many platforms now available to sell belongings you don’t need or use anymore
- Consider getting a part-time job or a side hustle to make a few extra bucks that you can direct toward repayment..
Automate Minimum Payments on Everything
To ensure you don’t miss any payments, set up automatic payments for all minimums. You can continue to manually direct funds to the credit card you’re actively working on paying down.
Another Option to Consider
Like many people, if you have high-interest debt and are struggling to pay it back with even the best of budgets, talk to a credit counselor about a debt management plan (DMP). With a DMP, your credit counselor can negotiate with your lenders to reduce your interest rate, often dropping it as low as 6%–10%. They’ll also be able to work with your lenders to consolidate your loans into one affordable monthly payment, so you can pay back your loans in three to five years.
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