Creating a Debt Repayment Plan in 4 Easy Steps

November 7, 2012 at 10:03 am 1 comment

Today’s guest blog post was written by Laura Edgar, a senior writer for, an unbiased personal finance website committed to promoting financial literacy.

If you’re in debt, it’s easy to feel overwhelmed. It’s not like you can just stop spending money, after all. Despite what you might be feeling, you’re not trapped. You just need a sustainable action plan for repaying your debt. Achieving financial freedom won’t be easy. However, with a little bit of patience, self-restraint and help from the experts, it’s within reach. We promise. Here are four easy steps and some sound advice to help you.

Before you get started: things to consider

Financial counseling
Cut yourself a little slack. Making a good repayment plan is tough, and you’ll be much more successful if you’ve got an expert in your corner. Many reputable organizations offer free financial counseling, so why not take advantage? Make sure you pick a program that’s been approved by the United States Department of Justice. They have a complete list of approved organizations on their website.

Loan consolidation
If you’re feeling especially overwhelmed, you may want to consider consolidating your loans. This allows you to condense multiple loans into one with a smaller payment and a lower rate.

Step 1: Know what you’re up against

How much do you owe, exactly? “A lot” is not a good enough answer. It’s time to take a debt inventory. Gather your statements and make a list or spreadsheet that includes the following in information for each debt:

• Name of the lending organization and their phone number
• Reason for the loan
• The principal owed (total amount of money you borrowed)
• The interest rate
• The minimum monthly payments and the loan payoff date

This will help you visualize your payment schedule and create a budget. Seeing everything in one place will also help you remember what you need to pay.

Here’s a sample spreadsheet:

Who You Owe For What Phone Principal Interest Minimum Monthly Payment Payoff Date
Department of Education Student Loans (800) 4-FED-AID $4,695 5.60% $110 4/15/2015
Chase Credit Card (800) 432-3117 $2,273 19.24% $60 15th of every month
Total Debt $6,968 Total Payment $1,170

Step 2: Start at the top

Rank your debts by highest interest rate or highest balance. Whichever you choose, tackle that debt individually until it’s gone, then move on to the next one. Tackling your biggest debts first will reduce the overall amount you have to pay. We don’t recommend the debt-snowball method, which encourages you to pay off small loans first as “motivation” to tackle bigger ones. Paying off your debt is motivating regardless, so why make it more expensive than it needs to be?

Step 3: Prioritize your other purchases

Debt payments aren’t your only priority, especially if you don’t want to fall farther behind. You still need to pay your utility bills, buy groceries and keep up with your rent. Be sure to make any legal payments, like child support, a priority as well. The only thing worse than being in debt is being in jail, too.

Step 4: Save a little bit

“What? I’m in debt; I can’t afford to save anything!” you might find yourself saying. Nevertheless, it’s still a good idea to put part of your income (even a very, very small part) in a savings account every month. You have a lot to pay now, but you’ll get into more trouble later if you don’t start building an emergency fund.

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Entry filed under: Financial Topics.

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1 Comment Add your own

  • 1. furniture pick up  |  November 14, 2012 at 12:35 am

    This is a helpful tips for us. Thank you so much for posting this.


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