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How to set up a good debt payment plan

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Last editedAug 20212 min read

Debt is something we are all likely to find ourselves mired in at one point or another. But finding a way out of that debt doesn’t have to be as overwhelming as you think it might be. With a good debt payment plan in place, your debts will stop feeling like unbeatable burdens and start feeling like something you can actually manage.

What is a debt payment plan?

A debt payment plan, or debt management plan, is a system that lets you pay your debts in a manner you can actually afford. If you don’t think you can handle this yourself then you can go to a debt management provider who will help you devise a payment scheme that works for you. All of your various debts will be consolidated into one figure that the provider will pay on your behalf, acting as the middleman between you and your creditors. If you are in tax debt, meanwhile, you can set up an HMRC payment plan to spread the cost of your tax bill.

Why do I need a debt payment plan?

Debts have a tendency to build on top of one another and when that happens it’s typical to feel overwhelmed. A debt payment plan sets out a clear goal with a time frame and lets you track progress in real-time. Once you’ve set up your plan, you’ll be surprised how quickly it starts to chip away at your debts and you’ll wonder why you didn’t set one up sooner.

Setting up your debt payment plan

Follow this simple payment plan template if you want to begin your debt-free journey today.

List your debts

Having all of your debts listed in one place might be a little scary, but it will help give you a top-down view of the problem and visualise the size of the mountain you’re about to climb. Note, however, that many debt payment plans are only suitable for non-priority debts such as overdrafts, personal loans, students loans and credit card debts. 

Put your debts in order

It’s generally assumed that you should always pay off your smallest debts first as this helps build momentum. However, if you start with your largest debts you will save more money in the long term. Either way, you should try to pay off credit card debts first as they are likely to have the highest rates of interest.

Find the money

Go through your monthly finances and figure out how much extra money you can realistically scrape together to add to your monthly payment plan. This might mean cutting back on spending in certain areas. If you can’t find the money, you might want to consider picking up a steady part-time job or taking on extra hours at your current job. Selling items can also help, but this is a one-time solution so might not be a good idea for some.

One debt at a time

A simple payment plan can be made even simpler if you focus on one debt at a time. Once you’ve paid off one debt, move onto the next until you’ve crossed all of your debts off the list. 

Save, save, save

Once you’ve finally paid off your debts the last thing you’ll want to do is fall into debt again. So, once your debts are paid, set aside a savings account and keep putting away the same amount into it that you had been using to pay your debts. And remember to set your credit card direct debit payment to repay the full amount every month. If you can’t use credit cards responsibly, meanwhile, you’re better off not using them at all.

We can help

If you’re interested in finding out more about payment plans, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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