Today’s article is written by Catherine Alford, from BudgetBlonde.com
If you’re in a mountain of debt, getting started with paying it off can seem like the hardest thing in the world. Trust me; I’m right there with you since my husband and I are current drowning in student loan debt. The good thing for all of us, though, is that paying off debt is really quite simple. In fact, with the 4 steps below, you can be well on your way to getting out of it.
Assess the Situation
The first thing to do when you decide you want to pay off your debt is often the hardest. You should gather up all your credit card statements, student loan information, and online bills, and figure out exactly how much you owe to each creditor. Jotting down your balances, minimum payments, and interest rates so they are visible for all of your debts in one location makes it easier to decide how to really get started. It also makes it very apparent how big of a hole you’ve dug for yourself to get out of.
Decide on a Plan
Once you know all the nitty gritty details about your debt, you should decide which debt to focus on first. There are many different theories of which payment method you should use. There’s the debt snowball, where you pay them off in order of smallest to largest balance, or there’s the debt avalanche where you pay off the highest interest debt first and save the lowest interest debt for last. Some people choose neither of those and instead attack the debts they hate the most for whatever reason.
Personally, I don’t think it matters which method you choose to use to pay off your debts as long as you get started. I think the avalanche is smartest mathematically, but the snowball is best emotionally.
Create a Budget
I know, I know. There’s that dreaded B-word. Creating a budget isn’t always a bad thing though. Instead of looking at a budget as restrictive and no fun, you should choose to have the mindset that a budget can set you free. If you make a budget, you know where your money is going and what purchases may be holding you back from following your biggest dreams, like quitting your job, becoming debt free, or taking a huge vacation.
Again, the most important thing of all is that you just get started. If you don’t start today, you’ll regret it later. Commit to yourself that you will be debt free. If you need more help staying accountable, confide your goal to become debt free to a close friend or family member. If you don’t feel comfortable sharing that with anyone in your life, start a blog. The personal finance community is very welcoming to new bloggers. However, they will also help hold you accountable when you fall off the financial wagon, which is bound to happen sooner or later.
What do you think is the most important simple step to take toward debt repayment?