Are you currently in debt with no debt pay off plan? If you answered yes, you aren’t alone. In a recent report by LendingTree, more than a quarter of American have no definitive plan to repay their debt. This is a growing problem in the country as U.S. household debt tops $13 trillion. There is much advice directed at relieving debt, but the most important and practical piece of advice is to have a plan to reduce and eliminate the debt.
U.S. Household Debt
The largest portion of U.S. household debt is tied up in Mortgage debt. After mortgage the second and third largest amounts of debt that Americans hold is student loan debt and auto loan debt respectively. Coming in fourth in total U.S. household debt is credit card debt. Armed with this information, most individuals can formulate a plan to pay off their debt. Off the percentage of Americans with a debt payoff plan, those with mortgage debt have the highest percentage of individuals with an actual debt elimination plan. Out of all debt, Americans appeared the least prepared to pay off medical debt with 36% of individuals stating they had no plan to pay this debt off. The main reason that individuals are less likely to have a medical debt reduction plan is that these bills are often more confusing.
Making a Debt Pay Off Plan
Without a firm plan to pay off your debt, problems such as late payments and credit issues can arise. When beginning on your journey to pay off debt, it’s important to take a look back at what caused the debt in the first place and if it is due to normal circumstances beyond your control or if it is due to overspending or over-borrowing. Medical debt stemming from medical procedures not covered by insurance, for example, may point out the need for additional coverage. If the debt was caused by bad spending habits, it may be an indication that those habits need to be changed before charging forward.
Once you’ve analyzed your debt and figured out how much you actually have it’s time to decide how much you can afford to pay off, paying extra when you have additional income. Much like a Chapter 13 bankruptcy, you need to work on putting all discretionary income (money left over after basic necessities are covered) towards paying off your debt. Once you have this information, make a budget that will help you pay off your debt and stick to the plan.
Overall, living below your means is not only an excellent way to avoid debt but a great means of paying it off if you have accrued it. It’s also important to point out, that if your pay off plan will take longer than 5 years, or if you are facing foreclosure or debt lawsuits, filing bankruptcy can be an excellent means to eliminating debt within three to five years while allowing you to keep your property and discharge unsecured debt such as credit card or medical debt.