How to Create a Debt Payoff Plan

If you’re trying to get on top of your finances, one of the most important steps you can take is to create a debt payoff plan.

Paying off debt can be overwhelming and oftentimes it can be hard to know where to start. But with a little bit of planning and dedication, you can make a plan to get rid of your debt and get on the path to financial freedom. 

Read More: How to Stick to Your Financial Goals

Different types of debt

Debts can come in many forms, each with their own unique set of consequences.

• Credit card debt is common, and usually comes with hefty interest charges that can add on quickly if payments aren't made on time. We encourage our clients to avoid credit card debt as much as possible.

• Secured debt involves an asset you agree to give up should you default on the loan, much like a car loan or mortgage. 

• Personal loans are unsecured debts, and typically don't require any collateral upfront, though they may cost more in total interest than secured debts.

• Student loans come with stricter repayment requirements, often requiring direct debit payments over a number of years.

• Your consumer debt will impact your credit score, so it's important to be mindful of how much debt you take on, as well as how frequently you pay it back.

Knowing the details about different types of debt can help you make informed decisions about borrowing money in the future. At Triune, we work with you to avoid debt as much as possible, especially high interest debt, like with credit cards.

We also help our clients make a plan to pay off any existing debt they have. Here are some steps we use with clients to help you create a debt payoff plan: 

1. Make a list of all of your debts.

Start by making a list of all of your debts, including the loan amount, the interest rate, and the minimum monthly payment. This will help you get a better picture of how much debt you’re dealing with. 

2. Prioritize your debts.

Once you have a list of all of your debts, you’ll need to prioritize which ones you want to pay off first. Generally, it’s best to start with the debts with the highest interest rate first. This will save you the most money in the long run. 

3. Calculate your monthly Spending.

Once you know how much you owe and which debts to prioritize, you need to calculate your monthly budget. Make sure to include all of your income, expenses, and debt payments. Before you begin making extra payments on your debt, make sure you establish an emergency fund equal to one month of your total budget. This protects you for when life throws its curveballs (eventually, you’ll want to build this up to a larger amount, but starting here is great!). With your newly established budget, you need to figure out how much money you have left each month to put towards your debt payments.

Read More: Why Budgets Don’t Work (And What You Should Do Instead)

4. Make a plan to pay off your debt.

Now that you have a better picture of how much money you have to work with, it’s time to make a plan for how you’ll pay off your debt. You can use the “debt snowball” or “debt avalanche” method to decide which debt to pay off first. With the debt snowball method, you start by paying off the debt with smallest balance, then once it’s paid off, you add that monthly payment to the payment of your next debt… and continue “snowballing” payments until it’s all paid off. With the debt avalanche method, you start by paying off the debt with the highest interest rate first, and then like the snowball method, roll those payments into the next debt as they get paid off.

5. Stick to your plan.

Now that you have a plan, it’s important to stick to it. Try to make extra payments when you can and stay on top of your debt payments.

Creating a debt payoff plan can be a daunting task, but it’s one of the best ways to get on top of your finances and start working towards financial freedom. With just a little bit of planning and dedication, you can do it.

And remember we’re here to help. If you’re looking for financial planning support, reach out to our team today.

About Triune Financial Partners

Triune Financial Partners is committed to empowering people with life-changing financial counsel. Triune is an independent firm that values clarity, simplicity, and transparency. We're a fiduciary, which means we always put our clients' interests first. In addition to Financial Life Planning for individuals and families, we also serve 100+ businesses, churches and nonprofits to craft powerful 401(k) and 403(b) plans for their organizations. Whether you're working with one of our Financial Life Planners or setting up a 401(k) plan for your organization, Triune is here to help you thrive financially.

Interested in working with us? Get in touch here.