If you and your partner have a jigsaw puzzle of debt, it can be challenging to develop a payoff strategy. I mean, having a hornet’s nest of loans as an individual is already stressful enough. But loans owed by two people? You’d be forgiven for pretending they don’t exist. Instead of panicking, though, it’s time to settle in and develop a plan as a team.
Oftentimes the most intimidating question is where to start. As with most complicated problems, it helps to begin with small, achievable chunks and then sketch out the roadmap. To that end, I’ve developed 7 basic steps to help any couple craft a plan to pay off their debt and finally see some light at the end of the tunnel.
Step 1: List your debts
Before developing a plan, you and your partner need to know what’s on your plate. That’s why the first step is to list out all your debts and jot down high-level information for each loan including:
- Name
- Remaining balance
- Interest rate
- Monthly payment
At this phase, it should be obvious that you can’t be hiding debt from your partner. Without all the information, you can’t craft the best possible plan. (Not to mention that you should always be financially honest with your partner. If you don’t feel that’s possible, then there is likely communication or trust challenges that you two may need to work through.)
Step 2: Identify high-interest loans
Now that you know the full landscape of your debt, put a star next to your high-interest loans, which I consider to be any loan with a rate of 15% or higher. Credit cards are usually the most flagrant offenders. You want to focus on high-interest loans because they’re like wealth-destroying termites that are silently devouring your money by the day.
Step 3: Sort your high-interest loans by balance (lowest to highest)
At this point, you and your partner have listed out your debt and identified those that have the highest interest. Armed with that information, it’s time to start laying out the debts that you’re going to pay off first. Sort your high-interest debts from the lowest remaining balance to the highest remaining balance. This is the order in which you two are going to start paying off your loans. The focus is on the lower balance loans because those will get paid off more quickly, and achieving quick wins is going to be like taking a shot of 5-Hour Energy: it’ll pump you up and psychologically propel you forward.
Step 4: Repeat Step 3 with the low-interest loans
By sorting the low-interest loans from lowest balance to highest, you’ll now have a view of the second phase of your debt payoff strategy. And by combining the second phase with the first phase (i.e. high-interest loans), you and your partner will have a complete picture of your overall debt payoff strategy.
Step 5: Start making payments
It’s time to get moving! You two will be making the minimum payments on each of your loans. If you get a pay bump, a financial gift, or anything else that gives you more cash, put it towards the first debt on your priority list.
Step 6: Review your expenses
Everyone has some fat in their spending. Maybe it’s the ESPN+ subscription you never use. Or the clothing rental service that never quite fit your style. Find out where you can save some money in your budget and use it to pay extra on the loan at the top of your list.
Step 7: Roll the monthly payments forward
Once you pay off the first loan, take the money you were putting towards that loan and apply it to the next loan on your list. This process will put jet packs on your ability to pay down your loans more quickly.
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As you and your partner work through this process, build in monthly check-ins to discuss progress. What’s working? What’s not working? But don’t wait until your check-in to communicate about potential changes to your debt payoff plans. If you get a raise, tell your partner so you can adjust how much to put towards your loans. Also focus on your overall spending and make sure it’s not interfering with your plans. And most importantly, don’t add more to the debt!
If you and your partner would like to schedule a free consultation to learn how I can help further, please do! I’m always happy to chat.
PS There are more advanced methods you can use to speed up your debt payoff timeline such as personal loans and balance transfer cards. However, they must be used with caution. As a result, I left them out of the article.