The new year is right around the corner and if youâre like most people, youâve probably got a running list of resolutions to achieve and milestones to reach. If getting out of debt ranks near the top, nowâs the time to starting thinking about how youâre going to hit your goal. Developing a clear-cut action plan can get you that much closer to debt-free status in 2016.
1. Add up Your Debt
You canât start attacking your debt until you know exactly how much you owe. The first step to paying down your debt is sitting down with all of your statements and adding up every penny thatâs still outstanding. Once you know how deep in debt you are, you can move on to the next step.
2. Review Your Budget
A budget is a plan that sets limits on how you spend your money. If you donât have one, itâs a good idea to put a budget together as soon as possible. If you do have a budget, you can go over it line by line to find costs you can cut out. By eliminating fees and unnecessary expenses like cable subscriptions, youâll be able to use the money you save to pay off your debt.
3. Set Your Goals
At this point in the process, you should have two numbers: the total amount of money you owe and the amount you can put toward your debt payments each month. Using those two figures, you should be able determine how long itâs going to take you to pay off your mortgage, student loans, personal loans and credit card debt.
Letâs say you owe your credit card issuer $25,000. If you have $500 in your budget that you can use to pay off that debt each month, youâll be able to knock $6,000 off your card balance in a year. Keep in mind, however, that youâll still need to factor in interest to get an accurate idea of how the balance will shrink from one year to the next.
4. Lower Your Interest Rates
Interest is a major obstacle when youâre trying to get out of debt. If you want to speed up the payment process, you can look for ways to shave down your rates. If you have high-interest credit card debt, for instance, transferring the balances to a card with a 0% promotional period can save you some money and reduce the amount of time itâll take to get rid of your debt.
Refinancing might be worth considering if you have student loans, car loans or a mortgage. Just remember that completing a balance transfer or refinancing your debt isnât necessarily free. Credit card companies typically charge a 3% fee for balance transfers and if youâre taking out a refinance loan, you might be on the hook for origination fees and other closing costs.
5. Increase Your Income
Keeping a tight rein on your budget can go a long way. But thatâs not the only way to escape debt. Pumping up your paycheck in the new year can also help you pay off your loans and increase your disposable income.
Asking your boss for a raise will directly increase your earnings, but thereâs no guarantee that your supervisor will agree to your request. If youâre paid by the hour, you can always take on more hours at your current job. And if all else fails, you can start a side gig to bring in more money.
Hold Yourself Accountable
Having a plan to get out of debt in the new year wonât get you very far if youâre not 100% committed. Checking your progress regularly is a must, as is reviewing your budget and goals to make sure youâre staying on track.
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