How to Pay Off Debt in 3 Simple Steps

Cleaning up your credit can seem a little daunting and overwhelming when you are first looking for a way out from under your debt. Before embarking on your journey of debt recovery there are some steps to take to ensure the process is easy and successful. Start by learning how to pay off debt in 3 simple steps.

Develop a Debt Pay-Off Plan

One of the key ways to cleaning up your credit is paying off your debt. A debt pay-off plan is the best way to start working toward a future without debt. There are a few steps toward forming a debt pay-off plan that can make the process an effective one. Those steps are as follows and should be considered when putting together your pay-off plan.

Step 1:

The first thing you need to do is get a grasp on your level of debt and face it head on. You also need to get a copy of your credit report from all 3 credit bureaus. These could be received as downloads so you will have them for future use. I would go a step further and have these printed out so you can analyze the information.  The reason printing them is the best way to approach the situation is that you can then spread everything out in front of you and get a good look at the items on there.

Likewise you will need to pull all your recent statements and bills and put them on the table or work surface with your credit reports. If you are more savvy with computers, then use Excel to create the following list and then formulate a cell for a grand total at the bottom or top of the list. The list should include the creditor, creditor contact information, due date, monthly payment, interest rate and current balance. Cross check the information you pull from your bill pile with that from your credit reports. Make sure there are no discrepancies and that the information is the most up to date as possible.

Regardless of how you approach this step, the outcome is to have all your debt in front of you so you know what you are working with.

Step 2:  (How to Pay Off Debt in 3 Simple Steps)

Next you need to highlight the accounts with the highest balances (top five) and the highest interest rates. These are your most detrimental accounts. These are the accounts you want to focus your extra money and attention on. Keep in mind though that you still need to pay the minimums on your other accounts. So be mindful of that as you concentrate on the larger accounts one at a time. This will keep you from defaulting further and getting into further debt.

Once you highlight your top five accounts to work with it is recommended that you set up autopay for the remainder accounts for the minimum payments due. Essentially set those and ‘forget’ them in order to focus more on these top five. Now you want to put as much money as you can on these highlighted accounts in order to bring the balance down as quickly as possible. Being focused on paying down these balances will bring out your creative side. Soon you will find ways to make extra cash, or find things you can cut back on in order to pay these bills off. Keep in mind you can also make multiple payments throughout the month and as often as you can.

Step 3:

You should always attempt to negotiate and pay off companies if you have the resources to do so. If you have access to a lump sum of money this could be a good time to use it. Likewise, if you are close to the balance of any of the accounts, then you need to get on the phone and negotiate the debt with them and offer them a settlement. This could eliminate the debt quickly while still saving you money. If some of your creditors are unwilling to negotiate on the balance then ask for a lower interest rate.

If you were able to negotiate certain terms be sure to get this in writing, either via email or direct postal mail. Understand what your side of the agreement is and be sure to follow through with your commitment. Once you are done paying off these five highlighted accounts DO NOT close the accounts.  A big part of your credit rating is the length of time you have open accounts in good standing, so closing the accounts would actually hurt your score.

However, these accounts should be stored somewhere out of sight and not be used again. Otherwise it defeats the purpose of getting out of debt. This has been one of the most difficult discipline for us to master but one that is necessary if we desire financial freedom.

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Key Takeaways (How to Pay Off Debt in 3 Simple Steps)

These are the 3 simplest ways to help you find the best options to pay off your debt. When used together they could have the best success in forming a debt pay-off plan that you can stick with and will find success with.

Action Steps

1.  Gather your credit report and your account statements to understand where you are and what you are working with.
2. Highlight your top five accounts with the highest balance and the highest interest rates. Negotiate with your Lenders to see if they can lower the balance or interest rate if you make a commitment to pay at a certain time.
3. Set your other accounts on autopay so you will not forget about paying them. Then focus your energy and all EXTRA cash you have on paying down these five accounts as quickly as possible.
4. Once these accounts are paid off set them aside and do not use them. Now you can focus on paying down your other accounts until they are all paid off.

Paying off debt is a big task and it will take tenacity and strive to see it through to the end. However, when you get there the push and drive will be replaced by pride and relief. Soon you will have a renewed sense of respect for credit usage and money management. You are now on your way to creating financial freedom.

What other tips can you share with us about paying off debt?

Let us know in the comments below.

Cheers!