6 Steps for a Realistic Debt Repayment Plan

Just at the brink of your plan of attacking your debt, the one question emerges: How much money should I save? When I first looked at the amount on my credit report, I didn’t know where to start. I used the excuse of finally accumulating what was owed to what I had in savings to procrastinate. 

If I waited to that point, I wouldn’t be able to get rid of my debt. Don’t let that large balance scare you. It’s ok to start early. There’s an entire scenario out there that compares saving money versus paying off debt. 

To simply give the quick tip for this argument, saving money first is important. The best way to begin is in steps. In the following paragraphs, I will be going over tips that are best when starting to pay off debt.

Which accounts should you start with first? How much money should you have? These are many questions that people have at the beginning.  Keep reading below to plan out your debt payment strategy. 

Step 1: Savings

Save for an emergency first; best practices begin with saving. It would help if you got into better habits of saving money first. You don’t want to worry about other emergencies that can emerge meanwhile you’re paying off accounts. At best, you want to start with a $1000 Emergency Fund. Then if you want to be able to cover other expenses next, I would recommend saving at least 3-6 months’ worth of expenses. 

If you feel covered enough with just the Emergency Fund, it’s ok to start paying off your debt. When your income tends to vary alot, having 3-6 Months of expenses is extra security. Any time you are saving money, try placing it in an account that earns interest. Start by looking for a high-yield savings account to stash your savings. It’s not much of interest, about 1.0-1.2 % at times, but it’s better than a traditional savings account that is generally less than one percent. 

Do you have some medical bills part of your debt repayment plan?

Most collections agencies will allow you to use your Health Savings account or Flexible spending account to pay off medical bills. Take advantage of this option because you would be using pre-tax money to pay off medical debt.  See if your employer offers these tax-advantaged accounts along with your medical benefits. 

Save money before you pay off debt

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                                                                                                  Step 2: Make a list of Outstanding Accounts

Keep track of what is owed by keeping a list of outstanding accounts. Not everything that is owed might be on your actual credit report. If you receive any letter requesting collection, add that to your list. When pulling your actual credit report, print out a physical copy from one of the actual credit bureaus. Going to the source will undoubtedly produce more accurate information, including your actual credit score. Using third-party companies like CreditKarma or Credit Sesame might not have all of the accounts showing. They receive their information from the only two credit bureaus, which are always generally Transunion and Equifax. If you want your Experian report, you might have to go directly to their website. Use a debt tracker to list all of your outstanding accounts detailing the interest, dates, and creditor information.

Step 3: Create a Savings Account separate for Debt Payment                                                                             

I believe one of the smartest things you can do is open a separate account just for debt repayment.  Most banks will allow you to open as many savings accounts as you like. And many times, you can name that account, for example, Vacation or Holiday Fund. You don’t want any of the money coming from what you would use for your regular bills or from your savings account.  At the end of each month, transfer a certain amount of money to your debt payment. Keep things separate from having ample enough money to cover all expenses. And at best it allows you to be able to track your payments easier.

dispute inaccurate information on your credit report

Step 4: Dispute Inaccurate Information

The first thing I would do is see if there is any false information on the report. Print out a physical copy of your report. Don’t rely on third-party sites to have the most up-to-date information. You can go to either one of the three credit bureaus actual website or Annualfreecreditreport.  Save and or download the report, then print it. At a chance it only lets you print out the one copy, saving the file would be better. Review all of your accounts, and highlight all the accounts in question.

If there is a dispute with the account for any inaccuracy, definitely dispute it. You can dispute it with the collections agency or directly with the credit bureau. Always follow up on the dispute or resolution within 30 days.  Most of the time, once your dispute is confirmed that there is a mistake, the agency will request for removal. This will prevent you from having to pay those.  In my opinion, I wouldn’t dispute anything that is accurate. In most cases, it would be confirmed as so and could potentially decrease your scoring for that update.

Step 5: Ask for a Settlement or a Payment Plan 

After you made a list of accounts you want to pay off, it’s time to contact each one.  Don’t be afraid to contact the original creditor and collection agency. You want it to seem that you want to take care of it. It’s not resetting the clock or acknowledging over again that you owe the debt. You’re just trying to get rid of it. I suggest paying the smaller account balances in full versus a settlement. It looks better to have the account paid versus settled. 

If you can’t really afford to pay the account in full, ask if any settlement offers. A settlement is always more worth your while than a payment plan because that will save you the most money. And lastly, ask about payment options, take note of everything on your debt tracker.  Once you have all of the settlement options and or payment plan options, you can decide which accounts to pay first. Also, you might have a different total than what you had before. Let’s hope it’s a lesser one.

Step 6: Save for One at a time

How much money should you save towards Debt Repayment?

Save for one account at a time. This goes especially if you’re on a tight budget and can’t afford to clear all of your debt. On average closing, one smaller account has the same effect as closing out a larger balance account. At the end of the day, you are paying off a once outstanding debt. Decide on what part of your monthly budget is to pay off debt payments.  If you’re just starting, I recommend saving at least 10% of your monthly income to start.  Increase your percentage based on affordability each month.  Work your way down from one account to another. After you’ve asked about settlements and payment plan options, you should have more of an accurate idea of how much to save in total. Write that number on the top of your tracker. 

Tips for Paying off different Types of Debt

pay down high interest accounts first like credit cards

Pay down High-Interest Accounts First

It’s hard to pay off a credit card balance but easy to spend and increase what is owed. Many of us, according to last year’s pandemic, is looking for other sources of income. When you have a credit card, it’s easy to confuse that with actual income. One of the first credit cards I thought would help me turned out to be the opposite. As was my issue with making the payments on time and the accumulating of interest.

A most recent report from the Federal Reserve advises that Consumer credit card balances were almost $1 trillion at the end of 2019. It looks like that balance number will continue to rise. Payments for the minimum amount allowed are typically low, so mostly you are paying interest. As a result, it will take you much longer to pay off the balance. Now going back to income, after paying interest, it will ultimately cost you more. If you indeed want to hold on to your credits, always consider paying more than the minimum each month.  

If a credit card account is listed on your debt record, I suggest paying these off first. Credit card companies might offer a settlement amount to clear the account if it has already been closed. When the card is still active, work out a payment plan to get back to good standing.  Alot of financial advisors are against credit cards, but I, on the other hand, understand how much of an impact they can produce to improve your credit. The only fault is if you don’t make your payments on time and accrue too much of a balance owed. If you are responsible for your credit card payments, I don’t think you should completely close them out. 

pay off private student loans

Pay off Private Student Loans

Student loans can drag on as long as Mortgages its no wonder why we sought relief for these during covid19. As many as 44.7 million Americans with student loan debt and this survey again from Federal Reserve advises as of most recently; there is  $1.71 trillion in total U.S. student loan debt. The next step in debt relief is to attack these student loans. Government loans have already provided some relief, so you might be able to start a payment plan according to your income. 

Also, there will always be an opportunity to settle. On the other hand, private student loans have higher interest rates than government student loans. I would work on getting rid of these first. In getting rid of debt, always pay the ones with the highest interest rate first.  Rates on a Private loan can vary from 5% to 14%.  When filing your taxes check with a professional tax consultant to see if you can claim the payments on your return.  It may be worth your while to make steady payments before the tax year ends.  

If your looking for more student loan statistics this article was extremely detailed from StudentLoanhero.


To get the most accurate idea, you have to know exactly what’s out there. How much debt do you have, and who do you owe. There might be some accounts that should not be on your report; you’re going to want to dispute those.

And for the others, if you’re trying to save some money, see if there are settlement offers. Once you have your total, review your budget and see realistically how much you can save a month towards debt.

Before tackling this goal of getting rid of your debt, make sure you have saved your emergency fund. It’s always best to have something saved just in case.

After you can continue by saving at least 10% of your monthly income towards debt, if you are on a tight budget 10% is more flexible. Make a list of all the accounts that you are paying off, save for one at a time. Once you pay off one account keep going. The satisfaction of progress will propel you to succeed.

Create a separate savings account just for debt repayment and earn interest in saving that money. Saving money in interest will ultimately help you save more to pay them off faster.

If you can do more than one account, I recommend it but don’t sacrifice your budget. Your actual Budget is the basis of all expenses. No matter how tempting it is, stick to the plan. In the next budget review, revise it and then increase your debt savings.

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