Step #4: Make Your Plan & Set Goals
As you develop your plan, you’ll need to consider how much extra money you can afford to put towards your debt each month (above the minimum payments). Again, you’ll do this by reviewing your budget and finding ways to trim it so that you have extra money to put towards your debt.
Next comes the planning. In some cases, it’s beneficial to consider a multistep approach. For example, you might refinance your loans or consolidate your revolving debt before moving forward with the stack or snowball methods. Evaluate each option and pick the ones that work best for you.
Refinancing involves replacing an existing loan with a new loan, ideally with a lower interest rate and/or lower monthly payment. While this isn’t a payment plan, refinancing debt can be a good strategy if you have debt with high interest rates.
When you consolidate, you take out one larger loan and use that loan to pay off multiple smaller loans. Instead of having numerous minimum payments to make, you’ll have one. In addition to reducing your monthly payments, it’s possible to reduce the interest and the time needed to pay off.
Once you’ve picked your debt repayment strategy, set goals for yourself. When will you aim to pay your first debt off? When will you aim to pay 50% of your debt off? What will paying off your debt enable you to do? Think about what means the most to you and include those goals in your plan.