One of the most popular New Years resolutions is to get back on track financially.
Now that 2017 is in full swing, it’s easy to fall back into your normal routine. You may have just opened your credit card statement reflecting holiday spending for last year and feel defeated and decide to give up, thinking it’s not possible to kill your credit card debt this year.
However, with some planning and the right resources, it is possible to pay off your high-interest debt this year and begin to live the kind of life you’ve always wanted.
Here’s how.
Start With A Simple Budget
Budgets are thought of as boring or difficult to implement. If that describes you, it doesn’t have to; in fact, the beauty is that you can customize it to your life and needs. A budget allows you to do one key thing – track your spending.
Money is a tool, and you need to know where it’s going to successfully pay off debt. Living by a budget allows you to see exactly where your money is going and what opportunities you have to throw extra money at your debt. The simple fact is this: budgeting works when you’re trying to pay off debt. That’s according to personal finance blogger Phil Swisher of Young Adult Survival Guide who paid off $30,000 in debt over the course of 12 months, “I attribute the majority of my success to good ole’ fashion budgeting, which most people overlook.” Swisher describes that a budget helps you identify areas to cut so you can free up money to throw at your debt.
Starting a budget doesn’t have to be difficult. Start writing down what you spend. Whatever isn’t taking you towards your goal, reduce and throw the balance at your debt.
Start Planning for Next Year
Buying presents during the holidays is harmless, but when you don’t have the funds set aside, it only adds to your debt. Americans spent over $1 trillion during the holidays last year, which is nearly $1,000 per family. If put on a credit card with no plans to pay off in the near future it will only increase in size.
Once you establish a simple budget and begin to attack your debt, the best thing you can do for yourself is begin to plan for the 2017 holiday season. “If you spent $1,200 over the holidays then save $100 a month. Figure out how much you spent and set up a monthly savings plan for it,” says Risher. You can do this by setting up an automatic transfer to a savings account each month, so the money will be there for you at the end of the year.
Seek out Available Resources
Part of what makes credit card debt so debilitating is the high interest rate it accrues. Credit cards commonly have an interest rate of at least 15 percent, making it difficult to pay off if you’re only making minimum payments. This is like going into a fire with a water gun; it’s ineffective.
Thankfully there are resources available to help. You can consolidate your credit cards into a lower rate loan. You can also transfer outstanding balances to a 0% APR balance transfer card. Just make sure your spending days are behind you or your debt will snowball. Additionally, make sure to vet loan consolidation companies as not all will truly help you.
You may also want to ask your employer what resources they offer. They may offer access to credit counseling services or other avenues to help you set up a plan of attack.
Make it Visual
Paying off debt requires motivation as it can take a long time to become free. Sometimes the best motivation comes in the form of a visual representation. If you face a substantial amount of debt consider using visual tools to help motivate you.
You can do something as simple as creating paper chains to hang in your house. With each milestone you achieve (every $500 or $1,000 you pay off), remove a chain. You can also put pictures around your house or office to represent why you’re working to pay off debt. Find what motivates you and make it stick.
Grow Your Emergency Fund
Quite possibly the best way to kill your credit card debt this year is to beef up your emergency fund. A recent Bankrate survey shows that only 41 percent of Americans can rely on savings when an emergency arises. Often those who don’t will rely on a credit card in the event of an emergency.
If this describes you, the best way to avoid this situation is an emergency fund as it provides something to fall back on when a crisis hits. “If you dipped into your emergency fund to cover your holiday expenses, it’s time to quickly rebuild it, so you don’t have to rely on credit if a real emergency occurs. Remember, your goal should be to have six months’ worth of expenses in a readily accessible account for unexpected expenses,” says Carla Dearing, CEO of SUM 180.
If you find the goal of saving six months of expenses overwhelming, don’t let that hold you back. Start with a goal of $500, then $1,000 and grow from there. Doing so will help you break the cycle of credit card debt.
Paying off credit card debt can be difficult, but it’s possible to kill it. With some hard work, you’ll soon be well down the path of becoming financially free.
