How to: Help With Repaying a Debt

Debt repayment is one of the most challenging tasks people face. It can create anxiety and be intimidating for overwhelmed borrowers. But doing so creates grave dangers, such as generating significantly damaging information on your credit report and dragging down your credit score, of which 30 percent is made up of how much money you owe. Paying down debts and creating financial freedom is a goal for many and requires patience and persistence. If you need help with specific plans or motivation, resources are available.

Instructions

1

Talk to a credit counselor if you feel you have a significant amount of debt that is insurmountable on your own. A counselor will help guide you through the process and come up with solutions that can be tailored to your personal situation and needs.

2

Create a budget. This is an essential part of debt reduction. On a sheet of paper, list your sources of income on one side and all of your expenses (such mortgage payments, groceries, entertainment) on the other. Add up each column. When budgeting, your goal is to end up with fewer expenses than your income so that you are saving money at the end of each month. If your expenses exceed income, you are going into debt. Cut down on your expenses so that you are saving money.

3

Use your savings to reduce your debts. While it may seem reasonable to save your money, you are better served to reduce your debts because you are likely paying a higher interest rate on your outstanding balances than you would make on any savings investment.

4

Choose an appropriate or preferred method to pay down your debts---the snowball or avalanche method. The snowball method is when you take your lowest debt and pay it off, then moving on to the next lowest debt, creating the "snowball" until you reach the biggest one. The avalanche method begins with the debt that carries the highest interest rate and moving on down to the next highest interest rate once the first is paid off.