For most of us, the New Year brings resolutions around two things: Waist tightening, and wallet tightening.
Unfortunately, getting out of debt is routinely cited as one of the most commonly broken New Year’s Resolutions. Perhaps it is because of a lack of will or a realistic plan. Whatever the reason, let’s focus on a few key steps to lead you to a debt free lifestyle.
How did I get into debt? Getting out of debt requires that you determine what led you into debt in the first place. Often, people end up in debt because they have over-indulged and over-borrowed. Others suffer misfortunes such as medical expenses or debt due to divorce. The goal is to recognize what caused your debt so that you can take steps to prevent the same thing from happening again.
Check your spending habits. Trim your spending and create a budget. Track all of your expenses for at least a month. Put your expenses into categories (e.g., food, housing, credit cards, car payments, entertainment, etc.) and total up each category. Once you have analyzed your spending, you can make changes in how you allocate your money. For example, you may find a disproportionate amount of your income is going towards entertainment or food. Let common sense be your guide to establish a budget to live within your means.
How much debt do I have? Until now, you’ve probably remained oblivious to how much debt you really have. Now’s the time to face reality. Make a list of all your debts, the amount you owe, the interest rate, and the minimum payment. Use recent billing statements, canceled checks, or account statements to develop a complete list of every creditor.
Put together a plan. A debt plan doesn’t have to be complex. All you really need to do is prioritize your debts, either by interest rate, by the balance owed, or some other criteria that you choose. Then, decide how much you are going to pay every month. It may be best to make one or more large lump-sum payments to one of your debts while paying the minimum on all the other accounts. Then, once you’ve paid off one creditor, redirect your lump-sum payment to the next creditor on your list.
If you need help we have partnered with GreenPath Financial Wellness to get you personalized answers to your individual needs. You can speak with one of their financial counselors at absolutely no cost on issues ranging from a proactive savings plan to saving a home from foreclosure. They’re ready to help you! Simply call 1-877-337-3399 or visit GreenPath on the web.
Pay off your debt. Now that you have developed a plan and a monthly payment amount, it is time to make your payments faithfully every month. This part of the plan will take the longest—possibly several years, depending on the amount of debt you have accumulated. So don’t expect to get out of debt overnight.
Keep it off. Like weight, without resilience, debt has a way of coming back. As you pay off your debts, close any credit card or finance accounts that you don’t absolutely need. Obviously, you can still enjoy the convenience of having a credit card – but you may find that you don’t need as many as you’ve got.
With a little determination and patience, this will be one New Year’s resolution that will reap great rewards for your future. Once your debt is paid, you’ll want to focus on ways to save. Stay tuned for more during America Saves Week, February 27th-March 4th, and prepare to take the pledge to save!