How to Get a Handle on Your Debt This Year *Guest Post*
How to Get a Handle on Your Debt This Year
by Alek Sabin
The most common New Year’s resolution that people set is to lose weight, followed very closely by improve finances. There are a lot of people setting out to make changes in their budget in January, but many of them will find themselves losing steam by the end of the first quarter. The key to being able to stick with any financial change is having a good plan and sticking to it, including getting out of debt. Here are some tips to help you get a handle on your debt this year…
Identify the Sources of Debt
The first thing that needs to be done, when trying to get out of debt, is to take a tally of all the debt that actually exists. You’d be surprised how many people know that they are in debt, but don’t actually know how many places they owe money to. After all, people are in debt for all types of reasons, including home loans, car loans, general loans, medical debt, student debt, and so on. The first step to do this is to actually take calls from debt collectors and create a list of what you owe, then you can reasonably start thinking about who to pay off first and how much you can afford to put towards it every month.
Familiarize Yourself with the Details of Debt
One reason that debt seems to be such a difficult animal to tackle is that the world of debt can be extremely confusing. Build a stronger understanding of debt by familiarizing yourself with some of the most frequently used debt-related terms. Once you’ve gained a stronger fluency in the language of debt, it won’t seem like such an intimidating thing to tackle.
Try to Make Daily Progress
Decide now that you will do one small thing each day that will help you realize your goal of becoming debt-free—keeping in mind that you’ll only ever need enough willpower to do that one small thing each day. You might on one day work for an extra hour if it means making more money to put towards paying off your debt, and on another day you might list some old household items up on eBay for selling. Create a list of go-to things you can do as your “small steps.” Here are a few additional ideas to get you started:
- Switch to a difference insurance provider, cable provider, etc. who offers you a better rate.
- Make a meal or two in bulk and store the leftovers in your freezer for easy meal prep during the coming weeks (thus reducing your temptation to eat out.)
- Clip coupons for the next time you plan on grocery shopping (being sure only to clip coupons for things that you would be buying anyway.)
- Walk, ride your bike, or share a ride somewhere rather than drive.
Pick People to Be with Who Understand Your Goals
Sometimes we have good intentions and a strong motivation to stick to our budgets, but then we end up spending time around others whose budgets aren’t nearly so tight. These people may not at all be negative influences in our lives, but we can feel pressured to “keep up” with them spending-wise when we go out to eat or go shopping with them. If you find that when you spend time around certain people you’re more likely to blow your budget, consider spending less time around those people—or at least changing up what you do when you spend time together. And if there are people in your life who are simply negative drains on you and your wellbeing, it might be best to distance yourself from them completely.
Switch Up Your Routine
New Year’s resolutions are all about breaking your routine, because sometimes it’s absolutely necessary for getting you out of old habits. The best way to get out of debt quickly is to focus all of your resources on the task, which means making a hard budget. Cutting monthly expenses will free up some cash to put towards becoming debt-free. Cancel your cable, stop eating out, and find free avenues of entertainment. If more drastic measures are needed, sell your car to eliminate the payment, and liquidate any assets you can afford to do without. Even selling your home is preferable to spending the next several years pinned under overwhelming debt.
Be Thrifty With Your Goals
Obviously, there are going to be bigger projects and expenditures that come up throughout the year. These are the types of projects that can break your bank and throw your budget out of whack. The key here is that you need to approach these things with lots of planning and be thrifty about it. For example, if you are thinking about updating your home to make it more valuable, only pick projects that give you a higher ROI on a dollar-by-dollar spend. For example, updating a bathroom will get you more home value than a bedroom would. Likewise, your home’s curb appeal can improve, thus improving value, by simply adding a few plants to improve the landscaping, or even just creatively updating your garage door.
Build an Emergency Fund
This one doesn’t sound appealing to many who are focusing on paying off outstanding credit card debt because it involves cutting out a portion of your budget for something that you won’t see an immediate benefit for. But consider it this way: using money from an emergency fund to pay for a car repair will likely be a lot easier than paying off a credit card you use to pay for a car repair later.