Minimize Your Debt This New Year

1/1/2021

A common New Year's resolution is to set a financial goal of paying off all debts in the coming year. It's a great goal to set, however it might not be possible to pay off all of your debt in one year, but don't be discouraged. If you have a lot of debt, setting a goal to minimize that debt is a good way to start the payoff process. Getting yourself into debt can be easy, but getting yourself out of debt can be much more difficult. If you're focused and determined, it's possible to reduce your debts without having to make huge life sacrifices. All you need is a plan…

Read More: How Debt Can Affect Your Mental Health

Assess Your Debts

The average American has $90,460 in debt, which includes personal loans, mortgages, credit cards, and student loans. So, if you feel like you're alone in debt, you're most certainly not. Although you're not alone, your debt journey will be different from someone else's. The first step you want to take in minimizing debt is to evaluate all of your debt. Collect all of your financial documents and print out your credit report to see which debt is weighing you down the most. By doing this you can determine which debt you need to prioritize first. Write down the balance, annuals fees, interest rates, and monthly amount due for each of your debts. When doing this, make sure to include all loans, such as auto or personal and credit cards. After you've collected this information you want to make a note of your total minimum monthly payments.

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When assessing your debts, focus on your consumer debts like credit cards and car payments. Put your student loans and your mortgage aside for now. These loans have comparably long terms and low APR's.  Don't completely disregard your mortgage or student loan debt however, focus on your other shorter term and more expensive (think higher interest rates) debts first. Make sure you're making at least the minimum monthly payment on time for those debts every month, so you don't put yourself in bad financial standing.

Get your budget on track

If you're looking to minimize your debt and you don't already have a budget in place, it's time to start one. A budget can help you monitor how much you're earning and spending, and what you're spending money on. By developing a budget you'll be more aware of your income and expenses, and a budget can help you eliminate or reduce unnecessary cost. When creating a budget, you need to write down your income then add up your monthly expenses both fixed and variable. You can learn more about starting and sticking to a budget here.

It's possible to be in in the red even with a budget. The good news is that now you have a budget, you can see where you can cut back. If your monthly expenses are too high, look for ways to reduce your spending. Maybe you can cut some of your set expenses, such as subscriptions or cable, if you're not really using them. Being dedicated to minimizing your debt might mean you have to cut out a few things that you don't necessarily need every month. This could be that extra trip to the nail salon or night out every month. Cut out one of those trips every month and apply that extra cash to your debts. Don't worry, once you're debt free you'll be able to add those items back into your budget. Reconfigure your budget to find a little extra to add to your debt payoff plan.

Not only do you need to have a budget, but you have to stick to it. There are so many great tools for budget management. Using an app like Mint is a convenient way to monitor your spending and receive alerts when you go over your budgeted amount for a category. The app also alerts you that your credit card bill is due soon.

Read More: The Surprising Benefits Of Budgeting

Build an emergency fund

If you're trying to get out of debt you might think, “Why would I be putting money towards anything else but my debt?” Therefore, building an emergency fund while paying off debt might sound counterproductive, but it's actually not. Having an emergency fund can keep you from creating more debt.  An emergency savings provides you with a financial security blanket that you can use when unexpected expenses arise, which saves you from charging these emergencies to your credit card.

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The suggested starting point for your emergency fund is three months' living expenses. You want to eventually work yourself up to saving about six months' living expenses, but while you're paying off your debt having three months' living expenses is a good starting point. If you feel you can't build up three months' living expenses in your emergency fund while paying off debt that's okay.  Having any amount of money in your emergency fund is better than having nothing. Start small then work your way up to saving more. You can learn more about emergency funds and how to start one here.

Get a side hustle

Having an extra income of any kind will help you pay down your debt. Not only is having a side hustle a great way to pay off debt, but it's a great way to stay out of debt once you're debt free. Having that extra income every month, in addition to your normal income, can help you keep on top of your finances. You may think you don't have time for anything extra, however, having a side hustle can be super easy and convenient, if you choose one that suits your life. You can most likely adjust your side hustle to fit your schedule.

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A side hustle can be expanding on a hobby or selling your unused items. By doing this, you'll have some extra cash. Make your side hustle income dedicated to minimizing your debt by putting all the money you earn from your side hustle toward your debt. If you don't want your regular income to take a hit from your debt pay off, having a side hustle is a good solution. If you're dedicating your side hustle to strictly debt pay off, you'll be able to still enjoy some things you normally do with your regular income. Learn more about starting a side hustle here.

Pay more than the minimum payment

Once you've budgeted, organized your finances, and maybe even obtained a side hustle, you should be on track to pay more than the minimum monthly payment. By only paying the minimum on your credit card every month, you're not only hurting your credit score, but you're setting yourself up to be in never ending debt. Paying more than the minimum every month means you're not only helping yourself stay out of debt, but you're also helping save on interest as well.

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Paying more than the minimum every month is essential for your high interest credit card bills.  Try focusing on paying off one debt at a time (while still making minimum payments on your other debts of course).When you're credit card debt free, work toward paying more than the minimum on student loan payments and any monthly personal loan payments you may have.

Reach out to a non-profit credit counseling organization

If you feel your debt is too much to handle, make the call to a non-profit credit counseling agency. You can find an organization through the NFCC's website or you can reach out to an organization directly, such as Navicore Solutions. At Navicore Solutions, we can set you up with a custom debt management plan that's tailored to your financial life. With the debt management plan your debt won't disappear overnight, but you'll be on the path to a debt free life. Navicore Solutions is a leading nonprofit credit counseling agency that can help you with everything from budgeting to tackling your debt. You can contact a credit counselor at 1-800-992-4557.

Read More: When And Why You Should Choose Credit Counseling

Dominating your debt can be a long process or one you can tackle in a year, depending on your financial situation. Avoid overspending this New Year and focus on the debt you already have. Be consistent with the amount of money you put toward your debts. If possible, sign up for automatic payment systems so you don't miss any payments. If your debt is too much to handle on your own, reach out to a non-profit credit counseling organization with further debt management help.

 

 

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