Using a credit for your personal life or business, can be of great help to achieve your goals and give you some tastes; But what happens when your level of debt is so high that you feel that you are suffocating? Before panicking or deciding to acquire a new debt to finance the current one, it is time to put a stop and put together a financial plan that helps you settle your debts and not generate a bad credit history.

I share 5 steps that will help you settle your debts.

1. Identify your ability to pay

1. Identify your ability to pay

The ability to pay is the real money you have to cover your debts and it is very easy to calculate. To your income you must subtract the total of your expenses (rent, water, electricity, fun, ant expenses, etc.) plus the amount destined for savings. The formula is as follows: Income – (expense + savings) = Ability to pay .

There are different apps that can help you keep track of your expenses. I recommend CashExpert, because you can link it and review your expenses from your computer, tablet and cell phone.

2. Reduce your expenses

2. Reduce your expenses

It is necessary that you minimize your expenses by 10%. And yes, you can put many pretexts; that the money does not reach you or that everything is very expensive, but if you want to finish paying your debts and avoid a bad history, it’s time to say goodbye! To those ant expenses, save on fixed expenses (electricity, water, gas) and even get an extra income.

3. List your debts and prioritize them

3. List your debts and prioritize them

Something that you must be clear about, is that you must pay all your debts. Make a list of what you owe, where you include amounts, terms and interests. Enlisted, list them by importance. I share two ways in which you can prioritize:

Start with the smallest amount and term. This strategy will help you to feel motivated since in a short time you will get rid of debts

Start with the one of greatest interest. You will be able to pay the minimum of the debts that generate little interest and focus on paying those that can end up consuming you with interest.

4. It’s time to pay

4. It

Do you remember the 10% that you should save on expenses? It’s time to use it. Build your monthly payment plan, no matter what the minimum. The point is that you do not stop paying. To the debt that you chose as number one, you will add the 10% that you saved to start adding capital.

5. Repeat

5. Repeat

Since you finished paying the debt number one, you will add the amount of savings for debt to number two and successively to your other debts.