It’s not difficult to create an effective debt payment goal. But you have to follow the right steps to do it. Why? Because there’s a chance that you’ll create an unrealistic goal. When that happens, you might have a hard time meeting your monthly payments. That can make the whole debt relief process unbearable. If this kills your motivation, it’ll be very hard for you to completely pay off all your debts – making you feel like a failure.
If you have a lot of debts, you can’t let this happen. Although you probably have a lot of financial priorities now, your debts will always be among the most important ones. It’s just like the Americans right now who admitted that paying off debts is among the top 3 biggest financial resolutions that they have.
Why is it important? Because debts have the power to ruin your financial future. It can make your future self feel miserable – especially when you reach your retirement years. You might end up living on limited resources because you have to share your retirement fund with your debt payments. Or you may be forced to keep working when you should have been relaxing already.
These are only a few of the reasons why you have to create a debt payment goal.
5 steps to create a debt payment goal
It’s important for you to remember that it’s not enough to have a goal to pay off your debts. You have to make sure that it’s effective. To do that, you need to follow these simple steps.
Step 1: List debt by priority
The first step is to take a look at all the debts that you owe. According to reports, the average debt of Americans is at $92,727 and it’s a combination of mortgages, car loans, student loans, and credit card debts.
As you can see, it’s not uncommon for consumers to owe more than one debt. While you have the freedom to borrow more than one, you should be responsible when you do it. You need to make sure that you can monitor it. That’s the only way you can be sure that you won’t miss out on any payment.
This is the reason why listing your debts is the first step towards creating a debt payment goal. Don’t just make a list – rank them according to priority. You can rank them according to balance or interest rate.
If you prioritize the debts with the smallest balance, you’ll most likely celebrate a win (paying off a debt completely) in the near future. That can help boost your morale as you try to pay off the rest of your debts.
In case you decide to prioritize the one with the highest interest rate, you’ll be saving more money. The faster you pay off a debt, the more you save on interest payments.
Step 2: Set a timeline for each goal
After you’ve prioritized your debts, it’s now time to set a timeline for each one. This means setting a target date to completely pay these all off.
To do this, you first have to check your budget plan. Find out how much debt payment fund you can afford each month. When you have this amount, go back to your debt list. Distribute your debt payment fund on each debt – making sure that you meet the minimum payment requirement. If there’s anything left, put all the extra on the priority debt. Once you’ve done this, you’ll have an idea when you can completely meet your debt payment goal.
If your funds are not enough to meet at least the minimum payment of your debts, then you need to proceed to the next step.
Step 3: Choose a repayment plan
There’s usually a repayment plan that suits every financial situation. So if your debt payment fund falls short of meeting all your credit obligations, find a debt relief program that’ll make your monthly payments affordable.
For instance, you’re having trouble meeting your debt payments because you are facing an unexpected expense, like a medical bill. As long as your monthly income is not compromised, you can afford the payment requirement of a debt consolidation program. This debt solution will allow you to rearrange your payments so But it’ll help lower your monthly payments to give your budget some room to pay for your unexpected expense.
But if your income is compromised because you lost your job, then you need more than debt consolidation. You need debt settlement because it allows you to reduce the amount of debt that you owe.
Step 4: Boost your income
Once you’ve chosen your repayment plan, the next step is to boost your income. See how you can earn more so you can pay off your debt faster. The more you can pay each month. The faster you can solve your debt problems.
Fortunately for you, there are so many options to increase your income. You can ask for a raise or you can look for a side gig. There are many opportunities to work online. You just have to find an outsourcing platform that will connect you to these jobs. What’s great about finding a side gig is you can continue earning from these even after you pay off your debts. You can use the extra money to turn your other financial goals into reality.
Step 5: Build your emergency fund
Finally, once you’ve done all for steps, you need to secure your path towards your debt payment goal. The best way to do that is to build enough emergency funds. You want to make sure that if anything unexpected happens in the future, you are prepared. You won’t have to borrow money to finance it. Or you won’t have to compromise your monthly debt payments too. You can just dip your hand into your emergency fund. You won’t even stress about that situation. You’ll just focus on getting past the current situation.
Qualities of an effective debt payment goal
When you create a debt payment goal, it’s very important that you make sure it’s effective. Otherwise, it won’t help you reduce your debts.
But what are the qualities that’ll tell you that you have an effective plan to pay off your debts?
The first quality is you should have an actionable plan. What does that mean? It means this plan should be detailed enough to tell you what you need to do. Every step of the plan should be defined clearly so you’ll know how you can get yourself from your current situation into a debt-free one.
Realistic and achievable
Another quality of an effective debt payment goal is that it should be realistic. Because when it’s realistic, that means you can achieve it. Although it’s tempting to get out of debt fast, you can’t just set a high debt payment amount every month. It should be a comfortable amount that you can afford. Otherwise, the whole debt payment process will make you miserable. It’ll be hard to stay motivated and there’s a higher chance that you won’t complete your repayment plan. It’ll just be a waste.
Finally, you have to commit to your goal. You have to remind yourself that this is only temporary. Any sacrifice that you make right now won’t last forever. But if you stick to this, you’ll reap the rewards soon enough. This is why you have to do what it takes to stay committed to this task. If you have to, set up a support system – someone who’ll motivate and encourage you to keep meeting your payments.