Dealing with debt is a task nobody enjoys. It may have initially seemed like a good idea when you purchased your car or were tempted by interest-free financing, but the reality of paying off your debt each month can quickly become tiresome. This is why one of your main resolutions this year should be to clear your debt. Providing some relief by eliminating even half of your debts can make a remarkable difference and allow you to breathe easier.
Here are several straightforward steps you can take to overcome your debts:
BEGIN BY LISTING YOUR DEBTS
Jotting down all of your debts can be a daunting task, but it’s a crucial step. Arrange them in ascending order, starting from the smallest to largest. Leave out any debts such as a mortgage for now. Then, total the amount of your debts and divide this number by twelve. Should it be possible to clear all this debt in one year? If you can manage it with a budget of less than $700 a month, then yes, although it won’t be a walk in the park.
However, if your total debt requires over $1,000 a month to clear, then your goal should be to eliminate at least half of your debt for the year.
TAKE IMMEDIATE ACTION
With your debt obligations glaring at you from a piece of paper or computer screen, it’s time to formulate and implement quick strategies towards its reduction. For instance, you could return newly bought clothes purchased on credit, rather than using the excuse that you need them. Your ultimate need should be to get rid of your debt.
Addressing your debt will require you to self-evaluate, prioritize your necessities, and realize that an expensive new pair of pants isn’t integral. Quick steps could also include renegotiating the interest rates on your cards, or refinancing an auto loan to a lower rate, which could drastically reduce your monthly payments.
START WITH THE SMALLEST DEBT
There is ongoing debate regarding the best debt repayment strategy—paying off the smallest loans first, or tackling those with higher interest rates. However, consider the feeling of accomplishment when you lose five pounds in the first week of a diet versus losing ten pounds over two months. The same principle applies to debt repayment. Concentrate on the smallest debt first, while maintaining minimum payments on the rest. Once the smallest debt is cleared, move on to the next one. This strategy builds a strong repayment momentum that can sustain you for months ahead.
MAKE APPROPRIATE SACRIFICES
Achieving your financial goals often includes making sacrifices. This approach is vital because temporary sacrifices can lead to long-term benefits. Analyze your budget for potential cutbacks, even if only for a short period. Reducing fast food expenses or carpooling for a month, for instance, could save you between $100-200. This additional sum can significantly boost your debt repayment.
You are not required to implement these changes permanently. Having them in place for a few weeks could free up a substantial amount to contribute towards your debt repayment.
Committing to debt payment in the year ahead is a worthy goal. If your income seems to disappear before you have a chance to enjoy it, it is a clear indication that you’re either drowning in debt or living beyond your means. So why not give your finances a bit of legroom this year?
