Want to Tackle Your Debt Once and For All? Answer These Questions First
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If you’ve been in the red for a while, you might be ready to throw every extra dollar you have at your debt, even if that means your other financial goals suffer. But while your heart may be in the right place, tackling debt without a plan that fits your situation can backfire and cause you to miss out on other important financial opportunities in the meantime.

How to do it right? Start by asking yourself these four essential questions.

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What should I do first?

Jotting down a realistic debt repayment plan will give you the best chance of actually hitting your goals. Emily Bouchard, a money coach at Wealth Legacy Group, suggests focusing on bite-sized, achievable goals, such as paying $150 more than the minimums or wiping out your first $1,000.

“Each time you take an action, your brain will register that small, incremental step toward your ultimate goal—and will make it that much easier the next time you take the same action,” Bouchard says. “When you pay off one credit card and begin applying those resources toward the next one…your new momentum will grow.”

Related: Want to Hit a Big Money Goal? Start With a ‘Small Win’

How much should I save while paying down debt?

If you’re so focused on paying down debt that you neglect your savings, you’ll have a $0 net worth once you’re finally debt-free. And that can be demoralizing. A good financial plan includes both eliminating debt and accumulating savings—even if it’s a modest amount at first. Otherwise, if an emergency occurs, you might have to fall back on credit to cover the bill.

Though you probably already scoured your budget for areas of wasteful spending when creating your repayment schedule, Roger Ma, a Certified Financial Planner and founder of lifelaidout, suggests going back once more to seek out small places to cut back—like finding lower-cost alternatives to your favorite entertainment or downloading a coupon app—and then banking the difference.

Use that extra cash to start building up a mini emergency fund of $1,000 (while continuing to pay the minimums on your debt), Ma says, as that’s likely enough to cover an unexpected bill or deductible. Then go back to aggressively tackling your debt. When that’s finished, start beefing up your emergency savings again until you hit three to six months’ worth of expenses.

How much can I invest while paying down debt?

From a pure numbers perspective, it makes more sense to focus on paying off credit card debt because you’re unlikely to find investments with higher returns than what you’re currently paying in interest. However, there’s real value in diverting some cash each month to your long-term investment accounts, like a 401(k) or IRA. Not only are you giving your money more time to grow before you need it later in life, but you’re also practicing an important habit. And if your employer matches your contributions, you don’t want to miss out on that money.

Eventually, you want to be putting 10 percent or more of your income into tax-advantaged accounts like a 401(k). But you can work your way up to that. At the least, aim to contribute at least enough to take advantage of any employer match.

How do I incorporate other financial priorities?

When you prioritize paying off your debt, you’ll begin to see other areas that should be prioritized as well, Bouchard says.

One way to streamline the process? Automate your monthly debt payments and look into doing the same for other priorities, like transferring money automatically into a savings account. Once you’ve successfully scaled back your spending in order to pay off debt faster, you’ll also be more likely to maintain that level and funnel those extra funds toward new goals, like saving for a vacation, a home or a wedding.

Best of all, once you’ve proven you can accomplish one big financial goal, you’ll have the confidence needed to successfully go after the next major one on your list. And the one after that, too.

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