Understanding your personal debt situation is the first step to improving it. No matter how hard you try, without a fully comprehensive debt analysis, you won’t know the best way to proceed with eliminating your debts. Think of a debt analysis as the crucial weighing in before the big fight. You have to know that you are qualified to proceed, otherwise, your doomed to fail. With that said, let’s begin learning how to conduct a proper debt analysis.
Discover which debt has the highest interest rates
It will be well worth your time to list out which of your debts have the highest interest rates. Take a notepad, and order them from highest to lowest. Listing out your balances in order is one of the best debt analysis tools you have at your disposal. This will come in handy when you start applying specific debt management strategies to curtail that debt.
List out what your monthly payments are
Take the time to analyze your minimum monthly payments. In the same place where you organize your debts from the highest balance to the lowest, find space to list out your minimum monthly payments. You definitely want to match up those interest rates with their corresponding minimum monthly payments. Next to the minimum monthly payment, you can also write the maximum amount you can afford to pay for that debt every month. By now, you should have four columns. One for the name of your debt, another for its balance, the minimum monthly payment, and also the maximum monthly payment you can afford. Keep that information somewhere secure, it will come in handy later.
Do you have any prepayment penalties
Any debt analysis should definitely understand if any debts have prepayment penalties. Prepayment penalties are additional fees that are charged when you pay your loan off faster. This may sound ridiculous, however, they do exist. The best thing to do is just be sure by calling your lender and asking them directly.
Can you afford to make payments without sacrificing the roof over your head
Now that you have properly conducted a debt analysis, you can now begin to consider certain debt management strategies. One thing to consider is how you can pay your debts without skipping on essentials like rent, food, and utilities. It doesn’t make sense to pay one expense and go in the hole for others. Keep this in mind when you are planning out your debt management strategy. Make sure you pay your ‘four walls’ before anything else. These four walls are Food, Utilities, Shelter, and Transportation. Once these expenses are fully paid, we can then turn our attention to other debts like credit cards, or even student loans. Make sure you have your life covered so you can do the things you need to do to pay off the other debts. They’ll work with you, just be honest and communicate with them often. Especially when you are not paying.
What is the amount of time it will take to pay your debts using the debt snowball strategy
A great way to remain positive is to start calculating how long it will take you to pay off your debts. You must be patient when it comes to this. Take a debt management strategy like the debt snowball strategy. Once you have settled on a strategy, you can plug in your debts and begin to calculate how long it will take to become debt-free. Now you have a number of months or years that you can mentally prepare for.
Remember to stay patient, and good things will surely come from consistency