Debt Pay Off Plan

In times past, when the economy was good, the conventional advice was to have a debt pay off plan, paying down credit card debt and other high interest debt as fast as possible.
That advice has changed somewhat these days.
The unemployment rate is the highest it’s been in decades, and layoffs, hiring freezes, and wage cuts are the rule of the day.
These days it makes sense to have, as a first priority, enough of a savings cushion to pay off at LEAST six months worth of bills – mortgage or rent, phone bill, car payment, insurance, groceries, utilities, a couple of hundred dollars a month for emergencies, and any other bills that might come up.

You should still strive to pay more than the minimum on your credit cards and other high interest loans, even if it’s only $10 or $20 more than the minimum. But most important is making sure that you can keep a roof over your head, the lights on, and food on the table if you are laid off or, worse, if you and your spouse are laid off.
So it makes sense these days to sit down and calculate how much you would need as a minimum to support yourself for at least six months if you lost your job…and put as much money into your savings account every month as possible. When you reach the amount that you decided on, THEN it makes sense to start aggressively paying down your credit card debt – but not before.
When you’ve got numerous bills and you need to pay down debt, it can be challenging figuring out which bills to tackle first.

Debt Pay Off Plan

In fact, for many people it is so overwhelming that they put it off completely, making late payments – which trash their credit – or try to please everyone by writing a bunch of checks that end up bouncing – and none of this ends up being productive.
However, if you look at the process logically, it becomes very easy to see what order you should choose to pay off your bills.
First of all, and most importantly: Stick to your “debt pay off plan”.
You need to pay your rent/mortgage, utilities, grocery bills, and car payments. Income tax is also a priority because if you have a tax lien taken out against you, this is something that can devastate your credit rating for many years to come.
You need to set aside at least SOME money for savings – even if it’s only $50 a month.

Debt Pay Off Plan

Beyond that – you need to make a list of all the debts that you have and find out the interest rate on each debt.
Paying the minimum that you owe is a disaster. If you can afford to pay more than the minimum on all of these debts, more power to you.
However, if you can’t afford to do that, you need to pick the debt – probably a credit card debt – with the highest interest rate, and make it your goal to pay off that debt first.
So put some extra money towards that payment every month, until that debt is paid off.
If all that you can afford to pay is the minimum on the other debts, so be it. Stick to your debt pay off plan.

When you need to pay down debt and you are focusing on one credit card instead of your giant mountain of bills, you will be surprised and pleased at how quickly you see the balance on that credit card shrink.
You will find yourself setting aside money to put towards that bill…paying close attention every month to how much you owe, not hiding from it…and you will be thrilled when that bill is finally paid off.
And then you will move the next high interest bill to the top of the list, and you will do this one by one until you are free of high interest bills.
Yes, this may take a couple of years to accomplish, but following a “debt pay off plan” this way there is an end in sight and you will no longer feel so trapped and hopeless.

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