A number of people take on multiple loans in order to fund their different needs and requirements. And over time it can lead to debt accumulation. But, some of the debt might be reliable such as a car loan or a home loan as these are secured loans. But, sometimes, one might be forced to take a high-cost debt in the form of personal loans or credit cards at high-interest costs. And it can easily lead to a debt-trap & one might end up having more debt than needs to be repaid in a certain time frame.
While all these signal brothers, an individual will be able to get out of a debt trap by taking smart financial prudence. So, we will share some of the reliable as well as trustworthy approaches in order to set up a debt payment plan to assist a borrower avoid the dreaded debt trap.
#1: Begin by Creating a List of All Ongoing Debts
Before starting with any kind of smart strategy, you should be able to access each and every detail of all your debts in a single place. And the list you make should incorporate the minimum amount due, the interest applicable, and the whole amount owed. Here, you need to keep in mind that your list must-have data on all your debt, whether it is personal loans or credit cards or even student loans. So, if you've borrowed money from friends & family, this too must be involved on your list of debt.
Smart Tip - try to avoid taking fresh debt. While moving towards the path to set up a debt payment plan, make sure that you don't have any kind of fresh debts. This is a wise trick that will help you to come out of the debt trap,
#2: Prioritize Your Debts
In the next step, you need to organize your list of debts in terms of priority. Well, it has to be in the order of paying them off. This is actually perfect to start from the lowest amount owed to the largest since this aids to gain a reliable as well as trustworthy repayment momentum.
Smart Tip – Always target the high-amount loans in the first place while consolidating the debt. After you identify the most expensive debt, make sure to make a strategy for repaying the same.
#3: Go Through Additional Income Sources to Pay Debts
While making a debt payment plan, at a certain point, you may require checking our additional income sources in order to repay the debt faster. Well, it can be easily conducted after you've estimated the whole amount of money available in order to pay your debt obligations each month. And one of the most reliable approaches to making more cash available for debt closure is to cut the unnecessary expenses that can be easily postponed. Well, maintaining a proper monthly budget can help in setting aside additional money for the debt repayment.
Smart Tip – Well, if you're searching to close your debt in a faster manner than estimated, then try to enhance your income. Well, you can look for extra income-generating choices like part-time work, freelance jobs, etc. in order to collect that additional income every month.
#4: Target One Debt at a Time
Well, if you desire to succeed in the debt payment strategy, then you have to target paying off the initial few debts on the list. Make sure to aside all additional money for these first significant debt payments, while making the minimum payment.
Smart Tip – you can go for debt consolidation since it is one of the approaches that can help you to dissolve the debt trap in a faster manner. It includes taking lower-cost, new loans for paying different pending debts that have higher interest. With debt consolidation, you'll be able to combine different debts into a one blanket debt. And this strategy invokes gateways to favorable repayment, lower interest rates as well as lower EMIs.
The Ending Notes
Apart from making on time EMIs, you should aim for a debt-free future. A debt payment plan can help you to manage all finances and funds. Start with little to small modification while amending the financial habits & it will securely lead you to your financial goals.
For further details regarding Debt Payment Plan setup in the UK or anything relevant, visit our website.
And, to keep up with your repayments, debt management plan (DMP) customized to your unique situation is the right course of action.
Here is what you must know about DMP and how it is different from Individual Voluntary Arrangement (IVA), which is a formal agreement to deal with your urgent debt load and may take 5-6 years.
DMP is to manage your non-priority debts that includes, but not limited to credit cards, store cards, bank and student loans, etc.
It is an informal agreement between you and the creditor for an agreed period to clear your loans through affordable monthly payments.
The duration of debt clearance depends on the amount you owe to the creditors (usually less amounts with no threat of bankruptcy).
Like IVA, depending in your debt-to-income ratio, you can agree on one affordable monthly installment that will be distributed between the creditors you owe money to.
