If you’re trying to get out of debt, there’s no doubt about it: You have to come up with a plan before you start. You can just start paying things off willy-nilly, but don’t expect to get very far.
First, ask yourself this question: What is my ultimate goal? Is it to pay off all consumer debt? Student loan debt? Medical bills? Each will require a different plan because there are different rules. Read the fine print on interest rates, minimum payments and due dates.
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1. Budget Meeting
Set a date and time to hash it all out. If you’re married, your partner needs to be there. Gather receipts, statements and a list of your current expenses. Spend some time creating a budget. This will allow you to figure out what is leftover so you know what you’ll be able to put toward debt payments. My husband and I did this when we decided to start paying off our debt and although it took a few hours it was so helpful.
2. Set Realistic Goals
Realistic is the key word here. Set smaller goals first so that when you meet them you’re feeling good about your plan and want to continue. Decide which debt you will pay off first and how long it will take you to rid yourself of it. My husband and I made a list of all our debts, decided which ones to pay off first and then made the decision of how much extra we would pay each month in order to reach our goals in a set amount of time. Having a time-table for your debt is so helpful. You know you will reach each goal in X amount of weeks/months.
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3. Revisit Budget after One Month
Follow the budget for one month and then have your second budget meeting. Go over everything again. What you spent, what you paid toward debt, and decide if it’s working for you. If your budget is off then it’s time to adjust it. If you’re trying to spend less you might find more leftover funds to put toward debt.
4. Continue Following Adjusted Budget
Continue with the adjusted budget. At the end of the second month have your third budget meeting but this time focus on your debt. It can motivate you to see how much you have paid off in only two months. You may find that you are even more inspired to keep going. Think about the goals you set in the beginning. Are you on your way to meet them? If not maybe it’s time to adjust how much money you’re spending on what I call “fun stuff.”
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5. Follow the plan and Meet Goals
Eventually, if you continue the plan you’ve set up, you will meet your first goal. First off, I’m a big believer in celebrating when you reach a financial goal. You may be bare bones on the budget, and some financial experts might disagree with me on this one, but I think it’s time for you to splurge on a nice dinner or buy those jeans you’ve been eyeing. In fact, you can set up a reward system ahead of time to help motivate you to reach your goals. But playtime doesn’t last forever. You must set a new goal to stay on track. If you had more than one debt it’s time to start paying off the second. Don’t forget to readjust your budget during your monthly budget meeting. If you pay off one debt you should have more funds to put toward reaching your second goal.
The biggest thing to remember is communication. Because I manage the budget and am married, I always talk with my husband about upcoming bills or unexpected expenses. You should be doing the same in order to reach your goals. When you make a financial plan in the beginning, you’re setting yourself up for financial success.
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