Debt is an unfortunate reality for many Americans. Data from the Federal Reserve shows that total US household debt reached $16.15 trillion in the third quarter of 2022. With rising interest rates and economic uncertainty, having a debt repayment plan is more important than ever.
Debt Management Checklist:
An effective debt management checklist can get your finances back on track to achieve financial freedom. This blog outlines 10 essential steps to manage debt based on proven strategies and expert recommendations. By following this debt management checklist, you can take control of your debt and work towards becoming debt-free.
Assess Your Current Debt Situation:
The first step is to compile a complete list of all your existing debts. This includes the total balance, interest rates, and minimum monthly payments for each debt account. This overview allows you to see the full scope of your debt load and identify priority debts to tackle first.
Pro tip: Experts recommend targeting debts with the highest interest rates first, known as the "avalanche method". This debt management checklist step enables you to save the most on interest charges over time.
Set A Debt Management Goal:
With all your debts clearly laid out, the next step is to set a specific goal for debt repayment. This should include your total debt amount to eliminate and a target timeline. Setting S.M.A.R.T goals gives your debt management plan focus and keeps you motivated.
For example, you could set a goal to become 100% debt-free within 3 years.
Or target paying off your $15,000 credit card balance within 18 months. Tracking progress towards your goal is essential for staying on track as part of an effective debt management checklist.
Reduce Expenses:
One proven method for freeing up extra money to accelerate debt repayment is cutting back discretionary spending. Review your bank statements and credit card bills to identity non-essential lifestyle expenses to trim. Common areas to reduce expenses include dining out, entertainment, memberships, subscriptions, and more.
Consider using the 50/30/20 budget rule: 50% of income to necessities, 30% to lifestyle costs, 20% to debt payments and savings. Every dollar saved from lowered expenses can be redirected towards extra debt payments to crush balances faster.
Increase Income:
In addition to lowering expenses, increasing your income streams enables higher debt payments to wipe out balances quicker. Options to earn extra money include getting a side gig/second job, monetizing a hobby, selling unused items, or requesting a salary raise at your current job.
The debt management checklist step of boosting income accelerates progress to become 100% debt-free and achieve financial freedom. Even an extra $200 per month from a side hustle can make a difference in eliminating debt several years faster.
Consolidate Higher Interest Rate Debts:
Another strategic step is to consolidate debts with higher interest rates to save money over the long run. Balance transfer credit cards and debt consolidation loans allow you to roll multiple high APR debts into one new consolidated debt with a lower APR.
For example, while average credit card interest rates are over 19%, balance transfer cards and personal loans can offer APRs between 5-15%. Just be sure to pick an option with a rate and fees structure that provides overall interest savings after doing the calculations. Consolidating debt accelerates payoff timeline success.
Establish An Emergency Fund:
As part of an effective debt management checklist, experts universally recommend establishing a starter emergency fund savings account, even when aggressively paying off debt. Life happens and unexpected expenses like urgent home repairs, medical bills, or job loss can quickly derail debt repayment efforts if you have no savings.
Aim to save $500 - $1,000 in a dedicated emergency fund account before focusing all extra money on debt elimination. This provides a buffer to avoid taking on new high-interest debt that sets back your timeline for getting out of debt.
Sign-up For Automatic Payments:
Setting up automatic payments for the full or extra amount due each month ensures on-time payments to avoid score-damaging late fees and interest charges. For credit card balances, paying more than the minimum due each month saves substantially on interest over time at faster debt repayment.
Automatic payments help stick to your debt management plan by establishing consistent money movement every month to pay down balances. One less task to remember equals less chances of messing up your progress.
Track And Evaluate Progress:
As mentioned earlier, monitoring progress towards your specific debt freedom goal keeps energy and motivation levels high to stick with your debt management checklist plan. Compile all debts into a spreadsheet and update the balances every month to visualize constant progress being made.
Beyond tracking actual debt balances declining, also calculate interest charges saved by your accelerated repayment efforts. Seeing $100s to $1,000s in interest savings is powerful positive reinforcement. Consider treating yourself to occasional small rewards for hitting mini-milestones, like a 10% total debt reduction. Saving money feels great!
Make Minimum Lifestyle Changes:
Being ultra-aggressive with extreme austerity spending measures rarely leads to sustainable, long-term debt management success. Completely depriving yourself often ends up in binge overspending relapse. Consider minimally adjusting some lifestyle habits to find the right balance.
For example, limiting dining out to 2x per month instead of 2x per week still makes an impact without feeling deprived. Or setting a maximum monthly budget for discretionary spending allows for flexibility while keeping things reasonable to manage debt. Small changes win the race!
Seek Additional Support If Needed:
Despite your best efforts, some circumstances with excessive debt balances may require additional support for ultimate debt relief. Over two-thirds of Americans with debt and financial distress report feeling deep emotions like anger, shame, anxiety and depression.
If you feel truly overwhelmed emotionally by debt and unable to manage balances on your own, consider free non-profit credit counseling from reputable sources like Money Management International. Or discuss options like debt management plans and debt consolidation loans with financial experts.
Final Verdict:
Implementing this essential debt management checklist primes you up to take control of debt, achieve financial freedom and altered money mindset success. Monitor your progress and be proud of positive debt repayment strides - you’ve got this!
Shepherd Outsourcing provides customized debt management solutions and financial consulting to help clients take control of debt, achieve financial freedom and build long-term wealth. Contact us to start your journey today!
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