Managing debt is an extremely stressful experience. Yet, having a solid debt recovery strategy can make a big difference.
Debt recovery options in the UK may seem scarce. As a result, debt management plans and strategies are not known by many. As such, if you ever find yourself in debt, the first crucial step is to set up a debt repayment plan to take control of your finances.
Setting up a debt repayment plan will keep you on track. Not only this, but it will also help you see real progress and stay motivated.
In this article, we will show you how an effective payment plan for debt can help kickstart your journey to debt recovery.
Let’s get started!
Step 1 – Make a List of All Your Debts
Before beginning your journey to debt recovery, you need to write down all your debts in one place to understand them better. In your list of debts, include the minimum payment amount, the interest rate as well as the total amount you owe.
This list needs to be inclusive of all of your debt. From credit cards to personal loans to even your mortgage, it has to all be recorded. Moreover, if you owe money to family or friends, that debt also needs to be included.
Having all your debt details in one place enables you to prioritise which ones must be paid off first. Furthermore, as you update the list, it also allows you to track your debt recovery progress.
Step 2 – Set Debt Priorities
After making your list of debts, you need to determine the order in which you want to pay them off. Ensure to pay the minimum amount due each month on every account. By doing so, you can avoid late charges and potential damage to your credit score.
At this stage of debt plan management, many recommend going from smallest to largest to get initial momentum going. Meanwhile, other experts believe that you ought to go from the highest to the lowest interest rate, to save maximum money.
Typically, credit card debt has higher interest rates, so it’s a good idea to start from there. If you cannot afford all your payments, prioritise the debts that will have the biggest impact if they go unpaid.
Beyond these two aspects, the order you go with is up to you. However, it’s critical to stick to the list of debt priorities once you’ve made it.
Step 3 – Create a Budget
Creating a budget is an effective way to track and categorise your monthly income and expenses. If you are not already following a budget, now is the perfect time to create one.
By categorising expenses, you will be able to identify areas of discretionary spending. Moreover, if you ever need to allocate more money towards your debt recovery plan, you could cut back on these expenses.
Remember to establish monthly spending goals that include extra debt repayments to help you stick to your plans. Even after you’ve successfully paid off your debt, your budget will help you stay on track and work towards other financial goals.
Step 4 – Implement Debt Repayment Strategies
After setting your debt priorities, there are various strategies you can follow to accelerate your debt recovery. Not only do these strategies help you speed up the payoff process, but they could also help you save time and money.
Depending on how you prioritise your debt, you could utilise any of the following methods:
1) Debt Snowball Method
In this method, you will pay the minimum amount on each debt. Moreover, you will add any extra payment to the minimum payment on your credit card or loan with the lowest balance.
When that debt is paid off, you will take the combined payment and add it to the minimum payment on your next lowest balance. Similarly, keep following this pattern until all your debts are paid off completely.
2) Debt Avalanche Method
This method functions in a similar way to the debt snowball method. However, instead of targeting the account with the lowest balance first, focus on the account with the highest interest rate.
3) Debt Snowflake Method
In this method, you take your small everyday savings and put it towards repaying your debts. You could use this method alongside the snowball or avalanche method or on its own as well.
No matter which method you choose, once you’ve paid off your first debt, you have to move on to the next one. Simultaneously, you will also have to continue paying the remaining debts’ minimum balances as well. Continue doing so until you’ve crossed off all the debts from your list.
Step 5 – Build Up Your Savings
After you’ve completed paying off your debts, there’s still more to be done. The next item on the agenda of debt recovery is creating a savings account.
By building a savings account, you can avoid going back into debt in the future. An emergency fund is one of the best ways to take control of your finances and prepare for unexpected expenses.
Additionally, remember that if you ever need to borrow money in the future, do it responsibly or not at all. Debt recovery is not an easy journey and once you’ve reached the end it’s best to avoid decisions that take you right back to the very beginning.
Choose Salad Money for Fair and Affordable Loans
Debt recovery may seem like a long and arduous process. However, with a debt repayment plan, it becomes much easier. Once all is paid off, doing what you can to avoid going back there is essential. However, when an emergency strikes, you may be left with no other option.
During these times, when you require urgent financial aid, Salad Money is here to provide you with the much-needed relief. As one of the leading online lenders in the UK, we provide fair and affordable loans to public and private sector employees.
Designed to assist those with less-than-perfect credit scores, our More Than Your Score loans utilise an open-banking assessment system to determine loan affordability. As a result, we can offer you financial assistance regardless of your credit score.
What’s more, we’re also authorised and regulated by the Financial Conduct Authority (FCA), so you can rest assured that your financial information is in safe hands.
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