January is a great month for a fresh start. It’s the beginning of a new year and we’re often optimistic and energized to start making positive changes for our lives.
If you’re tired of the debt buildup you’ve been accruing over the months and even years, make one of your resolutions to get out of debt.
Links:
- Watch our Budgeting 101 webinar with step by step instructions on how to budget
- A personal loan can be a great debt consolidation tool
- Watch our Financial Freedom: Your Path to Debt Free Living webinar
- Check out these additional money tips on tools to help organize your finances:
- Follow our Facebook, Instagram and Twitter pages!
- Learn more about Triangle Credit Union
Transcript:
Welcome to Money Tip Tuesday from the Making Money Personal podcast.
New year resolutions are hard. They aren’t typically complicated, things like drink more water, exercise more, eat better, are all simple in nature, but a little more difficult to complete.
When it comes to making financial resolutions, the same concepts apply. Decisions to save more, spend less or get out debt don’t sound too hard, but are fraught with complex actions that if not set up properly, will likely end in failure.
If decreasing your debt is a resolution this year, you must set some things up right to give yourself the best chance of success.
When you think about achieving your debt reduction resolution, most of it comes down to proper planning. You need to create a strategy and stick with it. Just saying “I want to pay off my debt” isn’t enough to carry you through to completion. You need to pick a debt payoff method and develop a realistic plan that’s effective enough to help you meet your goal.
There’s a lot of debt advice out there and most of what you read, watch or listen to will present these three effective strategies to pay down debt.
The first is to plan to pay more than the minimum payments. You’re going to have to budget for this one if you’re serious about getting out of debt. Find a way to either bring in more money, or free up cash by cutting spending elsewhere to use as extra payments towards your debts. Some people try to make extra payments once a month, quarter or year, depending on their budget and the type of debt they have. One of my friends has been making extra payments on her home every quarter since she had her mortgage and is now set to pay off her house five years earlier than expected because of it. Imagine doing that with your own mortgage or credit cards.
The second is to use the snowball method. If you have multiple debts, you’ll want to systematically pay off your lowest debt first, and then, once it’s paid off, use the available cash to put towards the next debt, and so on. You’ll do this until all debts are eliminated.
For example, say you have three credit cards with balances of $5,000, $2,000 and $800. While you continue to pay your minimum payments on all of them, focus on paying off the $800 bill first. After it’s paid, take the money you were putting toward that payment and put towards the next debt, in this case the $2,000. Once the $2,000 is paid off, then put the money from those payments towards the $5,000. This method has been shown to be one of the most effective and faster ways of paying off debt.
The third is to consolidate. Having a variety of different debts can be confusing. It can be hard to keep track of all the different due dates and payments for each bill. Consolidation can help you in a couple of different ways. It will simplify the number of bills you receive and can often score you a lower interest rate. If you have many different bills, try consolidating some or all of them into a plan that makes it easier for you to pay and has the potential to save you money in the long run. Contact your financial institution or browse the internet to see what kinds of consolidation offers are out there.
If you’re a good planner pick one of these or use a combination of all three to build your debt payoff strategy.
Answer these specific questions when you create your strategy to keep it realistic and attainable. How much debt do I need to pay off? How soon do I realistically expect to be able to pay it all off? be specific here. Choose a realistic timeframe, like 6 months, a year or two years. And finally, ask yourself How much extra can I afford to put towards my principal payments?
The cool thing is there are a wide variety of tools available now to help with debt reduction. You can research a bunch of helpful apps and we’ve done some Money Tip Tuesdays in the past presenting some helpful tools for saving and debt reduction. You can also watch webinars like Triangle’s Financial Freedom: Your Path to Debt Free Living webinar on YouTube and of course, there are a wide variety of books you can read about debt reduction planning.
Once you’ve determined your plan, keep track of it. Put it in a spreadsheet, on your bathroom mirror or in your calendar to keep a constant eye on it. Consider allowing yourself small rewards for meeting important milestones along your journey and plan to treat yourself to something special once you finally accomplish your goal.
As the philosopher Aristotle once said, “success is easy to achieve once you set your mind on a specific goal.” Keep your goal top of mind and with a realistic, solid plan in place, you will be crossing that finish line in no time.
If there are any other tips or topics, you’d like us to cover, let us know at tcupodcast@trianglecu.org. Like and follow our Making Money Personal FB and IG page and look for our sponsor, Triangle Credit Union on social media to share your thoughts.
Thanks for listening to today’s Money Tip Tuesday and be sure to check out our other tips and episodes on the Making Money Personal podcast.
Have a great day!
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