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Planning for a Debt Free New Year

The last quarter of the year brings mixed feeling to most people,whereas  some people see the new year as a fresh start, others panic because tax season is that much closer but this year, you should be planning for a debt free New Year.  We also begin to list the things that are important for us to change in the year ahead. How we see debt, and how we manage it should be one of your top priorities in the new year.  Make this your year to get a handle on your debt, and take steps toward debt freedom.

Follow Through!

In the first quarter of a new year there is so much promise and we tend to make resolutions we forget about before the first week of the new year is over, but a new year is a new chance to follow through and make some important changes in our lives.  If you could follow through with one New Year’s resolution this year, focus on getting out of debt.  Debt causes stress, illness, divorce and many other undesirable things.  By simply making a plan to reduce your debt, and putting forth minimal effort to follow through each month, you could change your financial picture and gain peace of mind.

Baby Steps

As the saying goes, Rome wasn’t built in a day, and your debt will not disappear overnight either.  Your first step should be to know exactly who you owe, and how much.  This may sound like a no-brainer, but when you dig deep and get all of your debts together, it may come as a surprise when you put it on paper.  List your secured debts first, include interest rates and payment amounts and then list any personal loans or student loans, and lastly, list credit card debt from highest to lowest interest rate.  Secured debt is usually your largest debt, and the least expensive to carry.  Credit card debt is expensive and therefore should be targeted for payoff first.

Get to know your Budget

Take a close look at your monthly income, net, after deductions, as that is what you are left to work with.  List your monthly expenses, such as mortgage/rent, car payments, loans, credit card payments, utilities, insurance, and groceries and gas.  To get an accurate picture this step is crucial.  You need to see how much income is coming in, and where it is going so you can make a plan to become debt free.  After adding your income, and then subtracting your expenses, you are either left with a surplus or a deficit.  If you have a surplus, Congratulations, now you can take all or a portion of that surplus, and put it towards your debt repayment plan.  If you have a deficit, you need to either increase your income or cut  back on expenses.

Debt Repayment Plan

No matter how much money you can put towards your debt repayment plan, it sure beats not doing it at all.  Whatever amount you can afford monthly, you need to start applying toward your highest interest rate credit card.  You should have this listed at the top of your credit card list.  Next month, when this credit card is due, make the normal monthly payment plus the amount of surplus you have to work with.  This method should be repeated every month as well as paying all of your other monthly payments.  Remember, this is not a quickie method, but is sustainable over the long haul.  Anytime you come into some extra funds, any work bonus, garage sale proceeds, and any other “found” money, can be put towards this same credit card until it it paid off, then apply your surplus to the next in line.  Slow and steady, wins the race!

~To Your Success!