Know How Much You Owe
Make a list of your debts, including the creditor, total amount of the debt, monthly payment, interest rate, and due date. You can use your credit report to confirm the debts on your list. Having all the debts in front of you will allow you to see the bigger picture and stay aware of your complete debt picture. Debt reduction software can make this process easier. Don’t just create your list and forget about it. Refer to your debt list periodically, especially as you pay bills. Update your list every few months as the total amount of your debt changes.
Pay Your Bills on Time Each Month
Late payments make it harder to pay off your debt since you’ll have to pay a late fee for every payment you miss. If you miss two payments in a row, your interest rate and finance charges will increase. If you use a calendaring system on your computer or smartphone, enter your payments there and set an alert to remind you several days before your payment is due. If you miss a payment, don’t wait until the next due date to send your payment, by then it could be reported to a credit bureau. Instead, send your payment as soon as you remember that it was missed.
Create a Monthly Bill Payment Calendar
Use a bill payment calendar to help you figure out which bills to pay with which paycheck. On your calendar, write each bill’s payment amount next to the due date. Then, fill in the date of each paycheck. If you get paid on the same days every month—the 1st and 15th—you can use the same calendar from month to month. But, if your paychecks fall on different days of the month, you’ll need to create a calendar every month.
Make at Least the Minimum Payment
If you can’t afford to pay anything more, at least make the minimum payment. Of course, the minimum payment doesn’t help you make real progress in paying off your debt. But, it keeps your account in good standing, which avoids late fees. When you miss payments, it becomes harder to catch up and eventually your accounts could go into default.
Decide Which Debts to Pay Off First
Paying off credit card debt first is often the best strategy because credit cards have higher interest rates than other debts. Of all your credit cards, the one with the highest interest rate usually gets priority on repayment because it’s costing the most money. Use your debt list to prioritize and rank your debts in the order you want to pay them off. You can also choose to pay off the debt with the lowest balance first. This might cost a little more in the long run, but knocking off small debts first can build confidence.
Pay Off Collections and Charge-Offs
You can only pay as much on your debt as you can afford. When you have limited funds for repaying debt, focus on keeping your other accounts in good standing. Don’t sacrifice your positive accounts for those that have already affected your credit. Instead, pay those past due accounts when you can afford to do it.
Build an Emergency Fund to Fall Back On
Without access to savings, you’d have to go into debt to cover an emergency expense. Even a small emergency fund will cover little expenses that come up every once in a while. First, work toward creating a small emergency fund—$1,000 is a good place to start. Once you have that, make it your goal to create a bigger fund, like $2,000. Eventually, you want to build up a reserve of three to six months of living expenses.
Recognize the Signs That You Need Help
If you find it hard to pay your debt and other bills each month, you may need to seek outside help, like a credit counseling agency. Other options for debt relief are:
Debt consolidation Debt settlement Bankruptcy
These each have advantages and disadvantages, so weigh your options carefully.
