A Guide to Making a Plan to Pay off Your Debt


If you’re ready for financial discipline, congratulations. Your life is going to be much better in the long-run. You’ll have a few growing pains as you adjust your spending and tackle your debt, but it will all be worth it in the end. Here are four steps to get rid of unwanted debt.

List Your Debts


You can’t conquer your enemy if you don’t know it. Write down every single debt you owe: Credit cards, personal loans, payday loans, student loan balance, mortgage balance and anything else. According to USA Today, the average American has more than $100,000 in debt, so don’t feel bad if your budget sheet is in the red. 

List Necessary Expenses


Before you do anything else with budgeting, figure out how much you need every month to pay your necessary bills. These are some common necessary expenses: 

  • Mortgage or rent payment
  • Student loan payments
  • Auto loan payments
  • Credit card payments
  • Groceries
  • Gas costs to and from work
  • Childcare or school expenses
  • Other mandated payments: cell phone contracts, child support, alimony, etc.

In other words, you should list out the expenses you’re legally obligated to pay each month and your costs of basic living. Be as frugal as possible; your grocery budget doesn’t need to include alcohol or organic fruit juice. You want to create a list of the bare minimum money you need every month. 

List Unnecessary Expenses 


The next step in budgeting to pay back debt is making a list of regular expenses that you could cut from your budget. You don’t have to eat rice and beans every night, but it’s good to have an understanding of where your money is going. A few typical unnecessary expenses include: 

  • Eating out
  • Entertainment
  • Travel / vacation
  • High-end grocery items
  • High-end grooming services (expensive hair dyeing or pedicures)

If you’re serious about paying back debt, look at your unnecessary items and think about which ones you could remove temporarily. Maybe you want to get out of debt more than you want to go out to eat every other day. Maybe you don’t. Either way, this list will help you make an informed decision. 

Make an Emergency Account


The first financial decision you should make in any plan is how big of an emergency fund you plan to build. These accounts protect you against future problems and keep you from sliding back into debt. To calculate how much money you need in your emergency savings account, look at the list of necessary expenses you made and multiply it. If you’re in a low-risk situation with a stable job and multiple income sources, you might only need 3 months of savings. Conservative savers will have up to 1 year of expenses tucked away for a bad day.

You don’t have to continue paying interest and late fees. You don’t have to live in the shadow of a mountain of outstanding debt. If you’re willing to put in the effort, you can live a debt-free life.