Every new year marks a new beginning and with it, new new year’s resolutions. A resolution that always seems to find itself at the top of many lists is to get out of debt!
Resolutions don’t mean much make them achieveable and realistic, and some resolutions can take more one year to accomplish. Like any goal, you must set an actionable plan to accomplish it. You must lay out small steps that will lead you to be debt free. Here are some general tips that can help you get out of debt:
- Create a budget. Organize a spreadsheet on which you track all of your income, expenses, and debts. Your income MUST exceed your expenses so you can start paying down your debts.
- Look into areas where you can cut expenses so you can have more income available to put towards paying off debts. This can be difficult to do, but it is a necessary part of the process.
- Secured debts like home mortgages and automobile loans should always be priority over unsecured debts (credit cards). If you have secured debts like a home and automobile, these debts are backed by something of value and are not necessarily bad debts (the value may actually exceed the debts). These debts are set be paid off by a certain date and almost always have a fixed payment. You want to always stay current on these debts that typically have much lower interest rates than credit cards, while working at paying off credit card debts which have the tendency to get you into financial trouble because of the higher interest rates.
- To pay off your unsecured debts, apply your income towards smaller debts with the higher interest rates first. Work yourself up toward paying your larger debts with the higher interest rates. Your debts with higher interest rates will always be unsecured debts like credit cards and unsecured personal loans. The higher the interest rate, the faster these debts can grow; that is why you want to pay unsecured debts first while keeping secured debts current. Once all your unsecured debts are paid off, you can apply larger payments towards the principal on your secured debts to pay them off sooner.
These are some steps that can help you become debt free. There are resources available that can assist you with this resolution. Non-profit credit counseling organizations like Clearpoint Credit Counseling Solutions are a great place to start. They can educate you through the process of creating a budget and also help you establish debt repayment plan. They can help you get out of debt!