A brand new year often inspires positive life changes such as breaking free of debt. If collections calls have been interrupting your dinner or you’re just stressed out from heavy-duty debt, here’s how to eliminate the burden.
Determine where you stand
In order to solve a problem, you need to fully understand it. Assess your situation by listing all your debts, including balance owed, interest rate and minimum payment required for each. Next, order a free credit report to make sure you haven’t forgotten any debt or overlooked errors. Finally, compare your income and expenses and calculate how much you can realistically use toward debt reduction each month.
Don’t make things worse
The last thing you need is anything that increases your debt. Commit to not taking out any new loans or credit lines and, if possible, avoid incurring and charging additional expenses on existing accounts.
Prioritize debt
You’ll save more in the long run by paying off debts with the highest interest rates first. This category usually includes consumer debt such as credit cards or payday loans. Other types of debt, such as mortgages, car loans and student loans, typically have lower rates, making it more affordable to pay them off over a longer period. Throw as much money as you can each month at your highest-interest debt while still making timely, smaller payments on everything else. Then focus on paying down the next higher-interest loan.
Consider consolidation
When multiple debts are out of control, debt consolidation can be a lifeline. This refinancing process streamlines debts into a single monthly bill, often with lower interest and a smaller overall monthly outlay. This may help eliminate debt faster and less expensively.
Improve cash flow
If you’re able to get a part-time job, do it! Bring in as much income as you can and put it towards debt. You can also try selling unwanted items, eating out less and calling all service providers and negotiate a better rate (cell phone, cable, internet, insurance, etc.)
Budget, Budget, Budget
Working towards debt is one thing, but staying out of debt is another. Get into the habit of budgeting. Also, commit to putting away a small amount of money into savings. Having that extra amount of money set aside will come in handy in case of emergency.
Eliminating debt can bring dramatic changes over the coming year. In return, you’ll enjoy improved financial health, stress relief and the freedom to spend your paycheck on what really matters instead of having it siphoned away by past obligations.
