When you don’t take steps to repay debt, it can grow into a force to be reckoned with. The reason is that debt collectors often assess additional fees and interest on the debt you owe, so unpaid debts can become monstrous in short periods. Creating a debt repayment plan is essential to your financial health.

Follow these steps for a practical and workable plan:

1. List all of your debts. Write down everything that you currently owe money on, including debts you repay monthly and debts you’ve allowed to slip out of your conscious thoughts for a while.

• Old debts you’ve pushed aside have a way of returning to haunt you, especially if you decide to apply for a mortgage loan or some other type of loan. So it’s wise to pay off all your debt, not just some of it.

2. Rank your debts. Once you have a list of your debts, rank them in an order based on how you want to repay them. Some people choose the snowball effect, which entails paying the smallest debts first, then moving to the largest.
   • Another good strategy is to pay off the debts with the highest interest rates first so that you’re not accruing much more interest while working on other debts.
   • Both strategies are acceptable; ultimately, you want to choose the best option.
3. Determine your budget. Figure out how much money you can reasonably spend on debt repayment from month to month. Even if each debt is large, you can still pare them down by making monthly payments.
   • Be realistic about how much money you have to spend. Don’t take money away from other obligations to pay down debts – only use the money you have outside your regular financial obligations.
4. Create an emergency fund. If you don’t have an emergency fund, now is the time to assemble one. Save at least $1,000 before paying down debt so you have money to fall back on in a financial emergency.
5. Pare down your first debt. Once your emergency fund is put together, start at the top of your debt repayment list and work down.
6. Focus on a single debt at a time. Focus on only one debt at a time rather than spreading your budget over numerous debts at once. The reason is so you can pare down and wipe out one debt after another, maintaining your focus and momentum.
7. Put any extra money into savings. In the months when you find that you have extra money, consider putting it into your savings account or emergency fund.

As with any personal finance plan, your experiences may vary depending on your debt and how much money you have to work with. Using these guidelines, design a plan that works well for your situation, and soon you’ll be enjoying the many benefits of a debt-free lifestyle.